Sprint is "working toward a possible bid for rival T-Mobile" but is first examining regulatory concerns that could prevent such a merger, the Wall Street Journal reported today.
A merger would leave the US cellular market with only three major carriers, although a combined Sprint/T-Mobile would perhaps be a more formidable opponent to market leaders AT&T and Verizon Wireless. AT&T attempted to buy T-Mobile, but it dropped those plans in December 2011 after opposition from the Justice Department and Federal Communications Commission (FCC).
Sprint hasn't made a final decision on a bid, but it could happen in the first half of 2014 and be worth more than $20 billion "depending on the size of any stake in T-Mobile that Sprint tries to buy," the Journal reported. "But it would likely face tough opposition from antitrust authorities, who worry consumers could suffer without a fourth national competitor to keep a check on prices," the report said. AT&T's takeover bid for T-Mobile would have been $39 billion.
The Journal's sources indicate that Sprint is wary of wasting time on a deal that might not come to fruition, but the company's owner is leading the charge. "Driving the current effort is SoftBank Chief Executive Masayoshi Son, an aggressive acquirer who bought control of Sprint earlier this year and has made no secret of his desire to grow in the US via further deals," the Journal wrote.
Sprint may find a willing partner in T-Mobile. "Deutsche Telekom AG owns about 67 percent of T-Mobile US and is looking to possibly exit the US market," the Journal wrote. "Executives from Sprint and T-Mobile have argued publicly that the government should allow a combination of the two companies, as it would give them the scale to make the network investments and spectrum purchases needed to compete against Verizon Wireless and AT&T."
Sprint and T-Mobile would have a combined 53 million postpaid subscribers, compared to Verizon's 95 million and AT&T's 72 million.
T-Mobile previously merged with MetroPCS, while Sprint gained 100 percent ownership of Clearwire in July 2013.
T-Mobile has become a favorite among some cellular customers with its claim to be an "uncarrier" that offers more innovative plans than the market's biggest players. A year ago, T-Mobile said it would eliminate phone subsidies. In July, "T-Mobile unveiled a new type of mobile service plan that will allow customers to upgrade their phones up to twice a year with no outright financial penalty or waiting period," we reported at the time. Three months later, T-Mobile made data roaming free in 100 countries.
Consumer advocacy group Free Press is not a fan of the possible merger. Group CEO Craig Aaron issued a statement saying, "The public doesn't need fewer competitors and fewer choicesnot when the wireless market already has so little competition. As they did in blocking the merger between AT&T and T-Mobile, the FCC and Justice Department must carefully and closely scrutinize this deal and its impacts on consumers and their wallets. The public will get nothing good out of this deal."
Public Knowledge Senior Staff Attorney John Bergmayer reacted similarly. "A market with only three major carriers would be much more prone to 'coordinated effects' where 'competing' companies act as an effective cartel, even if they don't meet secretly to split up the market," he wrote. "All they need to do is match each others' pricing moves and pay attention to press statements and you have the same result as an illegal cartel without any lawbreaking. This is just as bad for consumers. ... In a market with just three carriers, it's less likely that one of them would make the same kinds of disruptive moves T-Mobile has made recently with its 'Uncarrier' program. ... [P]olicymakers should be clear that we need a minimum of four national carriers. This encourages investment in numbers three and four, just as we've seen in the wake of the blocked AT&T/T-Mobile deal."
The US, which has a major spectrum auction coming up in 2015, should also ensure that smaller carriers get enough airwaves, Bergmayer wrote. AT&T has argued that there shouldn't be any restrictions on how much spectrum itself and Verizon Wireless can buy, or that if there are restrictions that they should apply equally to all carriers regardless of size.