Sell Sprint Stock Because Sprint’s Merger Will Probably Be Blocked

The head of the U.S. Justice Department’s Antitrust Division, Makan Delrahim, postponed the deadline for approving the merger between Sprint (NYSE:S) and T-Mobile (NASDAQ:TMUS) from last Monday to July 29. The delay has raised doubts about the deal getting the green light,  sending both T-Mobile and Sprint stock lower in Monday trading.

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“I have not made up my mind,” Delrahim told CNBC. “The investigation continues. We’ve requested some data from the companies that will be forthcoming. We don’t have a set number of meetings or a timeline,” he added.

I’m not a legal analyst, but when a decision is delayed by three months, I think that usually indicates that the applicants are not winning the PR battle.

I could not care less about either company, and I wouldn’t own either stock, although I did suggest in February 2017 that investors interested in T-Mobile stock buy its parent, Deutsche Telekom (OTCMKTS:DTEGY), instead because it pays a healthy dividend.

As for Sprint stock, InvestorPlace contributor Ian Bezek recently stated that its share price would be squashed if the Department of Justice denied the transaction. 

“Sprint stock could be heading for a similarly tragic fate. It’s been apparent for years that Sprint and T-Mobile should merge to create a viable third option to AT&T and Verizon,” Bezek wrote in an article published on Apr. 3. “Yet, the government seems increasingly set on blocking the deal. With Sprint set to have a poor 2019 as an independent company, shareholders need to start asking what happens if the deal is scuttled.”

At this point, I’d be shocked if the government allows the deal to go ahead. Here’s why.

Just Like Canada

In Canada, there are only three wireless carriers: Rogers Communications (NYSE:RCI), BCE (NYSE:BCE) and Telus (NYSE:TU).

Sure, a few independent carriers are operating, but there’s a reason why Canada has some of the highest wireless charges in the world. 

“While progress is being made, prices in Canada remain expensive compared to other nations,” the Department of Innovation, Science and Economic Development (ISED), which commissioned the annual study of wireless prices in Canada compared to the world, stated in December.

The report found that a 2GB plan in Canada was 20% more expensive than the average price for the same plan in four mid-sized American cities. The Canadian package was also more expensive than similar plans in Berlin, Paris, London, and Rome.

Naturally, the Canadian Wireless Telecommunications Association has a problem with the study because it doesn’t focus on promotional pricing offered by its members.

Anecdotally, I know how expensive Canadian plans are because friends of mine in Halifax who moved there from Washington D.C. last year, couldn’t stop remarking about the difference in cost between their U.S. provider and Canadian ones.

Let’s just say that Canada has not benefited from a telecom triopoly.

Significant Opposition

Several different groups representing unions, consumer associations, media types, and other concerned citizens have railed against the Sprint-T-Mobile marriage because it does not help the average American much.

“Our nation’s antitrust and telecommunications laws set a purposefully high bar for mergers that consolidate a market to this degree,” the detractors told the FCC.

All of these diverse stakeholders have one clear message: The Department and Commission should reject this merger, because it means less competition, fewer choices, and higher prices for consumers.

In what world does it make sense to have three companies controlling a wireless market with 327 million people?

Canada has a population of 37 million, about one-eighth of America’s, and yet it has three major providers, albeit ones that charge an arm and a leg for service.

It is sheer lunacy to allow these companies to merge because if Canada is any indication,  the results that the detractors warn about — fewer choices and higher prices — most certainly will materialize.

If you own Sprint stock, I would sell it while you still can, because unless President Trump has something to gain financially from this deal going through, it isn’t going to be approved.

Full stop.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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