While reactions run the gamut from extreme disappointment to full-on elation, Judge Victor Marrero’s decision to allow the merger of Sprint and T-Mobile led New Street Research analysts to conclude the deal “paves the way for T-Mobile to fundamentally disrupt the U.S. wireless market.”
It also eases the path for Dish Network to do the same, said New Street’s Jonathan Chaplin in a note to investors today, adding that the analysts include themselves in the list of winners. “It will be a lot more fun analyzing and writing about that disruption than about a somewhat stagnant status quo,” he said, suggesting T-Mobile’s next chapter may be a lot more exciting that its “already-exciting last chapter.”
Of course, the degree of disruption hinges largely on T-Mobile's ability to use Sprint’s spectrum. T-Mobile will acquire Sprint’s treasure trove of 2.5 GHz spectrum, which is in high demand as U.S. carriers seek mid-band spectrum for 5G.
U.S. District Judge Victor Marrero ruled Tuesday that T-Mobile and Sprint’s $26 billion merger should be allowed, disagreeing with a coalition of 14 state attorneys general that sued to block the deal. The trial lasted two weeks in December, with closing arguments last month.
T-Mobile started making preparations before the trial so that it can use Sprint’s 2.5 GHz as soon as possible once the deal closed—which wasn’t a sure thing. Analysts up until Tuesday’s announcement were still giving it a 50/50 chance of happening.
The New Street analysts think T-Mobile will redeploy Sprint’s spectrum swiftly, but “swiftly” probably means more than six months and perhaps more than a year, they added. “We may not see real evidence of the disruption we imagine for a while,” they wrote.
The analysts say the deal will give T-Mobile by far the lowest unit cost in the industry; it could sell capacity at a healthy profit at a price that would be well below AT&T and Verizon’s cost. “Telecom investors in the U.S. have never seen the kind of disruption that this could usher in; we think it is profound,” they wrote. “Viewed through this lens, T-Mobile could create much more value than through the old method of adding up standalone values and synergies.”
The winner in the MVNO department is Altice, whose MVNO with Sprint will now move to a much better network, they noted. T-Mobile also will be hosting Dish as an MVNO while it builds a greenfield 5G network.
With respect to the deal’s impact on cable, the cable stocks could face “a little pressure” today, and investors will be worried about T-Mobile’s intention to go after the fixed broadband market with its newfound capacity.
T-Mobile committed to marketing a fixed broadband offering to 10 million homes in three years and 28 million homes in six years. It’s a legitimate concern, but “we think T-Mobile will have a very limited impact on cable’s broadband business,” they added.