The merger that the wireless industry has been waiting for is finally moving forward, according to a report out this morning from CNBC. But Sprint and T-Mobile US aren’t commenting, and the two carriers are said to still be weeks away from an actual deal. Talks around an all-equity merger are said to be ongoing, and since none of the various cable operators thought to be interested in buying a carrier has come forward, Sprint and T-Mobile US may finally be motivated to seal a deal.
Of course the final outcome will depend on SoftBank, Sprint’s parent company, and Deutsche Telekom, which owns T-Mobile US. When SoftBank chairman Masayoshi Son first bought a majority interest in Sprint, he was expected to try to follow that acquisition with a purchase of T-Mobile US. But the U.S. Justice Department made it clear that it would not approve that deal. Now, T-Mobile has more subscribers and higher profit margins than Sprint, and most analysts expect the “uncarrier” to be the controlling company if and when a merger happens.
“The fact that TMUS/DT would be the majority holder should not be seen as a surprise at this point,” said analyst Jennifer Fritzsche of Wells Fargo. Fritzsche doesn’t expect a deal to close anytime soon, but she is looking for an announcement within the next few months. “In our view, such a deal would take at least a year to get approval and there is much logic on announcing a transaction before the November 2018 election cycle,” she said.
The two companies are reportedly discussing a deal that would make SoftBank a significant minority shareholder in the new company. Masayoshi Son is said to want to maintain an active role.
T-Mobile’s John Legere is expected to lead the combined company if the merger happens. Legere has been the public face of T-Mobile’s anti-establishment marketing campaign, which has focused on undercutting competitors’ prices.
Ironically, a merger of Sprint and T-Mobile could mean the end of the price wars and data discounts consumers have enjoyed, or at least a leveling off. Analysts say a three carrier ecosystem will be more likely to produce pricing equilibrium, meaning that the carriers could potentially generate more cash to invest in their networks. This could be impactful as the industry moves towards 5G, which will require significant capital outlays.
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