Yesterday, T-Mobile Us Inc (NASDAQ:TMUS) and Sprint Corp (NYSE:S) announced that they plan to merge, in an all-stock deal. The T-Mobile merger would create what may be the largest U.S. wireless carrier, with an estimated 127 million subscribers.
Sprint and T-Mobile Announce Planned Merger
On April 29, T-Mobile and Sprint — the country’s third and fourth largest wireless carriers — announced plans to merge their companies by 2019. The combined company name would be T-Mobile. The new company would be led by current T-Mobile CEO John Legere.
This would be an all-stock deal. Deutsche Telekom AG (ADR) (OTCMKTS:DTEGY) will own 42% of the new company. And Sprint parent SoftBank Corp/ADR (OTCMKTS:SFTBY) will own 27%. According to the press release, the T-Mobile merger would put the total implied enterprise value of the combined company at $146 billion.
Playing the China Card
China has been a huge factor in U.S. tech industry news this year. At CES 2018 in January, China’s Huawei had the rug pulled out from its U.S. launch when AT&T bailed on plans to carry the company’s smartphones at the last possible moment, reportedly under pressure from the U.S. government. And in March, President Trump blocked the proposed sale of Qualcomm, Inc (NASDAQ:QCOM) to Broadcom Inc. (NASDAQ:AVGO) based on the risk the deal would give China a competitive edge in mobile communications.
The T-Mobile merger has been carefully positioned to take advantage of that fear that China could become the world leader in next-gen 5G wireless technology:
“The New T-Mobile will have the network capacity to rapidly create a nationwide 5G network with the breadth and depth needed to enable U.S. firms and entrepreneurs to continue to lead the world in the coming 5G era.”
Taking no chances of having the proposed T-Mobile merger blocked by regulators, the companies are also playing up the positives for Americans. In the press release, they also claim the new T-Mobile would invest $40 billion in its coming 5G network. And that this would create “thousands of American jobs” while providing customers with “lower prices, better quality, unmatched value, and greater competition.”
The Changed U.S. Wireless Landscape Under a T-Mobile Merger
The immediate impact of the proposed T-Mobile merger would be a U.S. wireless marketplace that shrinks from four big players to three. And it could disrupt the current leadership, that has Verizon Communications Inc. (NYSE:VZ) on top, followed by AT&T Inc. (NYSE:T).
In terms of the new T-Mobile’s position in that hierarchy, it’s difficult to say for certain because of the variations in subscriber numbers listed by the carriers.
Reuters says the new company would have 127 million suscribers to 116 million for Verizon and 93 million for AT&T — that would make the new T-Mobile the largest wireless carrier in the U.S. CNBC on the other hand, says the combined companies would have 120 million customers and would remain “entrenched at number three.” And there are many variations somewhere between those two assessments.
Whatever the final numbers are, the T-Mobile merger would definitely change the game in the U.S. wireless industry.
In after-market trading, TMUS stock was up slightly. Meanwhile, Sprint stock dropped as much as 14% as investors reacted to the news.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.