T-Mobile/Sprint merger odds ‘are certainly no worse’ than at outset, analysts note

HarrisX survey results on Sprint/T-Mobile merger (HarrisX)
A recent HarrisX found some support among Americans for a Sprint/T-Mobile merger. (HarrisX)

The proposed merger between Sprint and T-Mobile was announced in April, and today two major new developments are affecting the odds on whether the U.S. government will approve the transaction: AT&T closed its Time Warner purchase, and T-Mobile and Sprint released their 700-page public interest statement in support of the transaction.

So how might these new developments impact the possibility of a merged Sprint and T-Mobile?

“The odds are certainly no worse and it is clear that TMUS/S understands its strengths and weaknesses in the current environment,” wrote the analysts at New Street Research in a lengthy review of the companies’ public interest statement, which was released shortly after AT&T closed its purchase of Time Warner.

Importantly, the New Street Research analysts believe that the Department of Justice may still attempt to block the merger between Sprint and T-Mobile even after the agency’s failure to stop AT&T’s purchase of Time Warner.

“The DOJ does not appear chastened that its argument met with so little favor from the Judge, with Mr. Delrahim [DOJ antitrust chief Makan Delrahim] instead arguing that the government had a good case and did a good job but the government simply had the misfortune to try the case before a single judge who just make a mistake,” the analysts noted. “We think the DOJ staff will largely adhere to the point of view expressed in its AT&T brief; indeed, change a few words and we could see the same paragraph in a complaint against the [Sprint/T-Mobile] wireless deal.”

However, the New Street analysts pointed out that the arguments set forth by Sprint and T-Mobile—primarily that the transaction will result in a better 5G network and won’t result in job cuts—may play better than AT&T’s arguments for its Time Warner purchase.

“One policy difference is that AT&T was arguing that a change in its business strategy—from owning networks to bundling with content and data as its principal business—justified the transaction, while TMUS/S is arguing that national policy (for international 5G leadership) and a need for higher-capacity networks in its core business justifies approval of the merger,” the analysts wrote. “In that regard, the TMUS/S argument has more appeal to government officials.”

However, the New Street analysts noted that Sprint and T-Mobile didn’t offer any firm commitments on service prices or job additions, which could affect how the DOJ and others react to their argument.

“While the [New T-Mobile] company promises lower prices, it is not clear what that means (on a monthly basis? A per GB basis?) or how it would be enforced,” the analysts wrote. “The filing also predicted more jobs but did not make a firm commitment on that score. Similarly, it argues that the MVNOs the companies currently hosts will benefit from the merger and that rural areas will obtain better networks but without a binding commitment to those outcomes.”

Finally, the analysts noted that it’s still too early to gauge political reaction to the merger, and that an upcoming Senate hearing on the topic, scheduled for June 27, might shed additional light on how the transaction might ultimately be received by the DOJ, FCC and other federal agencies wrapped up in the approval process.

“Usually we don’t see much significance from such hearings but in this case, any Democratic support or Republican opposition could cause us to adjust our sense of the odds,” they wrote.