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.”
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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.