T-Mobile and Sprint agree on $146bn deal
After a long journey, it seems like T-Mobile and Sprint will finally merge after agreeing on a deal last week. The two companies (representing the third and fourth biggest mobile carriers in the USA) have clinched a deal. It is not their first attempt to merge, but it seems to be the most promising one so far. Including debt, the new company (led by T-Mobile Chief Executive John Legere) will be valued at $146bn. Together, the two companies will have 127 million customers in the US. The main goal of this merge is to be more competitive with respect to the two biggest US telecom companies AT&T and Verizon, which have dominated the US telecom industry for years.
However, this deal faces heavy regulatory hurdles. In 2014, this same deal was dismissed, and there is a high chance that it will face the same result again. Different to what was expected, antitrust authorities under the Trump administration have continuously expressed opposition to major mergers, specifically concerning the telecom business, mainly due to fears of losing competitive markets. However, this time there are many arguments in favour of the Sprint and T-Mobile merger.
In order to realise this deal, John Legere must now present the advantages and disadvantages of the deal to the authorities. The telecom industry has faced many difficulties during recent years - due to customers’ increasing use of mobile data that costs less, while decreasing the use of original telecom services. Because of this, the major telecoms companies have experienced significant decreases in revenue.
In a Bloomberg interview, Legere claimed that in case of a deal, the company would invest $40bn in the new 5G technology, which is expected to be launched next year. 5G is probably the most important development within the telecom industry. This is not because customers are asking for faster internet connectivity to surf the net on their smartphones, but mainly because 5G has a very far reaching impact on future innovations and trends. This is due to the fact that products are becoming increasingly dependent on high speed internet connections.
One of the more important future developments is in the electric vehicle industry. With Tesla forging ahead and setting the example of producing electric cars, most leading car manufacturers have decided to shift their focuses towards electric vehicles as well. Companies like Daimler and Volkswagen are set to introduce electric versions of their product lines as soon as 2022.
But how is this important for the telecom industry? The point is that most of these vehicles depend on an internet connection, since their navigation systems use online maps. A fast internet connection is also needed for other services (i.e. music streaming). Furthermore, we can see a development towards autonomous vehicles. Those vehicles are dependent on very detailed 3D maps, which are also used via an internet connection. It is of vital importance that those maps can be downloaded at a high speed, otherwise significant risks may emerge.
In addition, consumers are extending the use of their mobile phones for different functions. Nowadays, a phone is not only used to make calls - it has developed into an entertainment device. Smartphone manufactures keep increasing screen sizes to enable better streaming and gaming possibilities. More people use their smartphone as their streaming device in order to watch their Netflix or Amazon Prime shows on the go. To be able to stream high quality shows, it is necessary to have a good internet connection.
The increased use of ultra-fast networks can also be seen in other sectors. Those include maintenance, factory automation, workforce training and field support. Nowadays, most of the companies tend to avoid using paper, and keep most of their data online. This is more efficient and also less cost intensive. Maintenance companies, Lufthansa Technik for example, can keep track of the current statuses of their airplanes online. In this case, engineers are able to use their portable laptops or tablets to directly upload their reports.
Furthermore, as teaching expands to on online platforms, it increases the dependence of students, teachers and schools on fast networks as well. Teaching materials can be available online, which, once again, is more effective and less cost intensive. All of those developments combined, highlight the need for an investment in the 5G network space.
Therefore, this will be the main argument for T-Mobile in order to convince the authorities to allow this to happen. Even though a $40bn seems to be a significantly large investment, a Deloitte analysis suggests that an investment of $130bn to $150bn in the 5G networks in the US alone will be needed to meet the needs of different industries.
In addition to this argument for the need of a large 5G network investment, the merger may bring other opportunities. According to the T-Mobile CEO the merge will also create a significant number of new jobs.
On the other hand, the main problem is whether the American telecom industry will still be competitive after this merger. Addressing this topic of competition, Legere stated that in his opinion, the telecom business has more than just four major players, as the industry also extends to different telecom start-ups.
Without any doubt, an investment in the 5G network is needed. However, it is very likely that the competitiveness of the US telecom market would suffer heavily from this merger. What will be the outcome of this deal? Only time will tell.
WRITTEN BY SIMON CONSTANTIN SCHOENHERR FOR BESA
PLEASE DIRECT ANY INQUIRY TO AS.BESA @UNIBOCCONI.IT