There were always two views on the pending merger of T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S), even though the merger’s complete we don’t have a much better sense of what it means for T-Mobile stock.
One was that it would make the duopoly between Verizon Communications (NYSE:VZ) and AT&T (NYSE:T) stronger, by reducing competition from two to one. The other was that it would threaten Verizon and AT&T by giving them one strong competitor instead of two weak ones.
The latter argument was based on T-Mobile CEO John Legere, a flashy, long-haired marketer who wore t-shirts under jackets and called T-Mobile the “Uncarrier.”
The argument now seems to lie in tatters. With the merger now on its way to approval, Legere is leaving the field.
But is it?
A New CEO and T-Mobile Stock
At T-Mobile, Legere had an unconventional image that attracted attention, but that was an act according to critics who saw him as a union buster who fought against privacy and network neutrality.
Mike Sievert has been with T-Mobile since 2012, first as chief marketing officer and since 2015 as Legere’s number two. His previous career combined work inside big companies (including AT&T Wireless) with cheerleading Seattle start-ups.
When the merger was announced in April 2018, Legere had been slated to become head of the combined companies, but the change to Sievert had been hinted at as long ago as July, according to CNBC, and Legere’s contract ends in April.
The assumption is Sievert is a more conventional leader, an Un-Legere, and thus his T-Mobile will thus be a more conventional company, held down by Sprint’s $35 billion in long-term debt.
But Sievert has been with Legere throughout his T-Mobile tenure. He is even given credit for T-Mobile’s “uncarrier” marketing. While he prefers sweaters to t-shirts, he’s got more in common with his boss than with his rivals, who rose to power through multi-tiered bureaucracies.
The Looming Threats to T-Mobile Stock
There was almost no reaction from the stock, up 12 cents, and the combined company will still be an underdog. The combined market cap of T-Mobile and Sprint is $92 billion, while Verizon is worth $246 billion and AT&T $292 billion.
Sievert takes charge just as 5G services start to roll out, making wireless and wireline services more direct competitors. Elon Musk is also launching thousands of satellites under the name Starlink, aiming to build a global Internet carrier.
Amazon.Com (NASDAQ:AMZN) CEO Jeff Bezos is also working on a satellite Internet scheme called Project Kuiper. Alphabet (NASDAQ:GOOGL) has also entered the wireless market as a re-seller, combining T-Mobile, Sprint, and CK Hutchison’s (OTCMKTS:CKHUY) Three service into a Mobile Virtual Private Operator (MVNO) called Google Fi.
While carriers have been touting 5G for years, the equipment market for it is only now ramping up. Most phones will have to be replaced to get the faster service. Many 5G markets, like the Internet of Things, are still in their formative stages.
The Bottom Line on T-Mobile Stock
Most of the conversation around the move involves what Legere may do next, but it’s Sievert’s plans that should be the focus of T-Mobile shareholders.
Right now, they have a stock with a market-matching price to earnings ratio of 20 and $44 billion in annual revenue, with $3.5 billion of net income. Sprint will add $33 billion of revenue to the mix, but it has lost $2.7 billion over the last year.
T-Mobile was a great growth stock before announcing its Sprint purchase. Over the last two years its performance has just matched the market.
Sievert faces huge opportunities like 5G, but also huge challenges. Speculating on his success looks risky, but I wouldn’t bet against him.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.