Judge asks Legere why Sprint can’t do a turnaround like T-Mobile

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T-Mobile also benefitted from a $3 billion AT&T breakup fee during T-Mobile CEO John Legere's tenure. (FierceWireless)

One of the biggest arguments that Sprint and T-Mobile have made in favor of their $26 billion merger is that Sprint is a failing company with a dismal future.

But U.S. District Judge Victor Marrero, who’s presiding over the case brought by several state attorneys general who want to stop the merger, last week asked T-Mobile CEO John Legere why Sprint today is not like T-Mobile was in 2012. Legere was appointed CEO of T-Mobile US in September 2012, and he has earned accolades for transforming the company with his "un-carrier" approach. “If T-Mobile was able to achieve this enormous upheaval and overhaul, why not Sprint, without the merger?” asked Marrero.

According to some quotes from the trial provided by New Street Research, Legere said there were several factors that led to T-Mobile’s turnaround, including the AWS spectrum it obtained from its MetroPCS acquisition along with cash that T-Mobile had available.

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“So the AWS spectrum that was given, the cash that was given, the availability of MetroPCS, and the scale that came with it, and the network that came with it, and the financial situation that T-Mobile was in was dire, but nothing compared to the distress that Sprint is in at this point in time,” said Legere. “I think Sprint also does not have the financial backing or the support of their shareholders to move further with the investments that were required, which would be gigantic.”

Legere didn’t specifically say where T-Mobile’s bounty of available cash came from back in 2012. But Roger Entner, founder and analyst at Recon Analytics, reminded that T-Mobile received a breakup fee of $3 billion in 2012 along with “gobs of spectrum” from AT&T when the merger deal between those two companies failed. “AT&T, at the time, armed the new T-Mobile with spectrum and money,” said Entner. “So in a way, they jump-started the revival of T-Mobile.”

In its September letter to AT&T’s board of directors, Elliott Management said, “AT&T paid the largest break-up fee of all time and provided T-Mobile with a seven-year roaming deal and the invaluable spectrum it needed to develop from a then-struggling competitor into the thriving force it is today. Over the following years, T-Mobile went on to introduce a number of disruptive initiatives that upended the wireless industry.”

Entner also said the 2013 MetroPCS merger was a boon for T-Mobile because not only did it give it spectrum, but it also helped T-Mobile reduce churn. “People were switching all the time between MetroPCS and T-Mobile,” said Entner. “They took away that competition, and as a result, when 40% of the people leaving you are going to the company you just bought, your churn goes down.”

In his testimony last week, Legere also pointed out that the wireless industry is in the midst of its transformation to 5G, which he called “a step-function change period” where carriers must spend more capex than during a regular time-frame.

“So, I think Sprint's brand position, its financial position, its alternative for network are much more dire than where T-Mobile was, and it's certainly my opinion that except for this transaction, Sprint would probably be sold for parts,” he said.

Judge questions Legere’s personal involvement

The judge also asked Legere whether T-Mobile would remain a maverick and a disrupter in the wireless market if it merged with Sprint and became a much larger company. Marrero noted that in testimony before his court, an expert for the plaintiffs, Professor Shapiro, expressed a view that if the merger were approved, T-Mobile would essentially move into the club of Verizon and AT&T.

Legere said, “That's a club that they wouldn't let me join, even if I wanted to. I'm probably the most hated person by those two large players on the planet. Secondly, I don't see them playing nicey-nice with each other either. So the whole concept of the fact that we create this new T-Mobile and, all of a sudden, AT&T and Verizon and the new T-Mobile are going to hold hands and sing Kumbaya, those two are quite aggressive with each other, and they've got the cable companies breathing down their neck.”

But the judge’s entire line of questioning about John Legere, personally, seems somewhat irrelevant because Legere has announced he plans to depart the company in April 2020. Only time will tell whether T-Mobile’s reputation as a disrupter will be sustainable after Legere departs, regardless of whether the company has merged with Sprint or not.

RELATED: Sievert to take T-Mobile helm in 2020 when Legere steps down

New Street Analyst Blair Levin said the judge is well aware that Legere will not be there to run the merged companies. “As we noted when he announced it, his retirement undercuts his credibility on the witness stand for projecting how the company will operate in years hence,” writes Levin.

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