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T-Mobile and Sprint Might Clear Major Merger Hurdle, Still Face Another

By Evan Niu, CFA - Jun 19, 2019 at 2:49PM

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There's still a lawsuit to deal with.

T-Mobile ( TMUS -1.96% ) and Sprint ( S ) were able to get the Federal Communications Commission to support their proposed $26.5 billion megamerger but have still been trying to appease antitrust regulators at the Department of Justice. Both the FCC and the DOJ have to sign off on the deal. To get the FCC's blessing, the companies had agreed to divest Sprint's Boost Mobile subsidiary, which helped ease concerns over competition in the prepaid market, where T-Mobile dominates. It's been previously reported that DOJ officials want T-Mobile and Sprint to "lay the groundwork" for a fourth carrier.

Investors are now getting a better idea of what that might look like.

Marcelo Claure and John Legere next to T-Mobile and Sprint logos

Sprint executive chairman Marcelo Claure and T-Mobile CEO John Legere. Image source: T-Mobile.

More to hoard?

Bloomberg reports that T-Mobile and Sprint might also divest wireless spectrum as a concession to get DOJ approval. DISH Network ( DISH 0.25% ) has emerged as the top bidder, offering an estimated $6 billion for those airwaves and the Boost Mobile subsidiary, according to the report. Other rumored bidders in recent weeks have included Charter Communications, Altice, and even e-commerce giant Amazon.com. Private equity firm Apollo Global may potentially help DISH fund its transaction, Reuters reported last week.

DISH has been scooping up wireless spectrum for nearly a decade -- and doing nothing with it, earning the company the nickname of "spectrum hoarder" among critics, including T-Mobile CEO John Legere.

The deadlines that Legere is referring to were imposed by the FCC, threatening to revoke DISH's licenses if it fails to use them. Way back in 2013, DISH committed to cover 70% of the population in 176 markets covered by its spectrum licenses, and the deadline to meet that goal is March 2020 -- less than a year away. Legere's February tweet was in response to reports that DISH had deployed its first tower.

Wireless spectrum is the lifeblood of the wireless industry, carrying all those bits of data to consumers' pockets. Deploying more cellular networks to utilize the spectrum would lead to greater competition and benefit consumers in the form of greater coverage, better service, and potentially lower prices. T-Mobile sent a scathing letter to the FCC in October, accusing DISH of doing little more than "license saving" tactics and urging the agency to take a hard stance on enforcing the obligations.

"DISH and its affiliates have a track record of hoarding spectrum with no benefit for consumers, and the Commission should make it clear that it will not tolerate that behavior any longer," the Un-carrier wrote. "Instead of building out its spectrum holdings, DISH has consistently sought waiver of the rules to delay its performance obligations."

DISH Chairman and co-founder Charlie Ergen acknowledged the anemic deployment recently. "We're in the midst of that build-out today," Ergen said at a mobile carrier conference earlier this year. "It's harder than I thought it was going to be."

Even if the DISH deal works out, there's still the issue of the lawsuit filed by 10 state attorneys general last week seeking to block the merger, arguing that it would hurt competition and result in job losses and higher prices over time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$114.85 (-1.96%) $-2.30
Sprint Corporation Stock Quote
Sprint Corporation
S
DISH Network Corporation Stock Quote
DISH Network Corporation
DISH
$32.21 (0.25%) $0.08

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