It’s an interesting time to be a stakeholder of Sprint (NYSE:S). For years, the mobile firm ran as an afterthought behind telecommunications leaders AT&T (NYSE:T) and Verizon (NYSE:VZ). As a result, the Sprint stock price has swung all over the map.
However, S stock has seen a resurgence in recent weeks. For starters, regulatory approval is the only hurdle left to merge Sprint with T-Mobile (NASDAQ:TMUS). Falling consistently behind the aforementioned leaders, a combined S-TMUS entity would present a viable competitor to the current de facto duopoly.
More importantly, Federal Communications Commission chairman Ajit Pai recommended that the agency approve the $26 billion. Part of his reasoning was that both Sprint and T-Mobile promised to expand rural broadband service. And with such a high-level supporting voice, the Sprint stock price skyrocketed, putting a smile on beleaguered shareholders.
From perusing various analyst commentary, the consensus appears that the merger will receive the regulatory greenlight. Not only did Pai give the thumbs up, but the deal makes economic and practical sense.
However, opposing voices are also prominent. Earlier this year, several Democrats complained that the merger would hurt the consumer. They have a point. Right now, four companies dominate the U.S. telecom sector. A merger would bring that number down to three, or a huge 25% loss.
Fewer competitors lead to less incentives to compete. Unsurprisingly, the Sprint stock price was flat to declining before Pai’s bullish take.
Even now, critics of the deal from the entire political spectrum have forwarded their reasons why the merger will fall through. This is generally the reason why I don’t like speculating on mergers: you never know how these things will turn out.
The Bull Case for Sprint Stock
Still, Pai’s supportive voice represents a significant catalyst. True, the FCC isn’t a monarchy so investors shouldn’t pounce on a single opinion. But let’s be real: that’s a very important and influential one.
Moreover, the overriding reality is that our telecom industry is a duopoly. Verizon fired the first shot in the race for the 5G rollout, but AT&T isn’t far behind. The latter levers vast communications networks that affords it credibility in implementing this technological paradigm shift.
As such, T-Mobile is waffling around in the rear-view mirror. Plus, that situation risks exacerbation on an exponential scale. I say that because technology flies at lightning speed. You only need to reference Intel’s (NASDAQ:INTC) troubles in rolling out their next-generation chips. Falling behind is almost a death sentence in this arena.
Here, you just have to look at the basic differentials in scope. AT&T has an enterprise value of $411 billion. T-Mobile has $75 billion, while Sprint is looking at $62 billion.
A key reason why S stock has floundered in the markets is that the underlying company has signaled the obvious: they can’t roll out 5G on their own. Therefore, allowing this dynamic to persist would heighten AT&T and Verizon’s duopolistic advantage. That, in turn, is bad for consumer pricing.
Naturally, if the merger goes through, you’ll probably want exposure to Sprint stock. As the worst of the best, the embattled telecom firm will piggyback off the deal.
Geopolitics Is a Tailwind for S Stock
Again, I must reiterate: I don’t like to speculate on mergers. No matter how reasonable your thesis, your thesis simply doesn’t matter. Multiple factors could influence the final decision, including and especially politics.
But here, I think recent international developments bolster the case for Sprint stock. Of course, everyone in the media has focused on the deteriorating U.S.-China trade war. But in this coming pain, we can extract a useful lesson: China is not our friend.
More broadly, the trade war has taught Americans that energy independence is just one cog in the economic gear. The next most relevant goal is technological independence.
It’s interesting to note that Pai stated that 5G represents a top priority for the Trump administration. That’s probably the smartest thing the President has said in a while. In the coming years, 5G will form the foundation by which all other technologies will base themselves.
Thus, we absolutely need a vibrant, dynamic and competitive telecom sector. Facilitating a viable third competitor is not just a matter of consumer interest. It could really be, like energy independence, a matter of national security. That’s why I like AT&T. And if you’re a gambler, you should probably like S stock too.
As of this writing, Josh Enomoto is long AT&T.
