T-Mobile hopes 5G makes quick work in review on Sprint
(Bloomberg) -- The next generation of wireless technology, known as 5G, is such a leap forward that it’s said to change everything -- maybe even the U.S. government’s view of a corporate merger it nixed before.
T-Mobile US Inc. and Sprint Corp. certainly hope so.
The companies cited the enormous costs of building a 5G network of ultra-fast, ubiquitous connections as a reason to approve T-Mobile’s proposed $26.5 billion purchase of Sprint when they unveiled the deal on Sunday. They are making the argument a centerpiece of their case to regulators who rebuffed an earlier attempt by the two companies to merge.
"Global tech leadership for the next decade is at stake,” said John Legere, the T-Mobile chief executive officer who would lead the new company, said on Twitter. The combination will create “the only company with the capacity to quickly create a broad and deep nationwide 5G network.”
Wireless providers say 5G -- so named because it is the fifth generation of mobile networks -- will connect millions of devices from robots to appliances at speeds that are 10 to 100 times faster than current technology. It could revolutionize other industries by making possible self-driving cars, remote medicine, speedy downloads of high-definition movies and maintenance of distant machinery in the field.
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It won’t come cheap. U.S. wireless operators are expected to invest as much as $275 billion nationwide over seven years to build out 5G, according to a report last year by Accenture that was commissioned by CTIA, the trade group that includes as members Sprint, T-Mobile and the two largest U.S. wireless carriers, AT&T Inc. and Verizon Communications Inc.
5G Agenda The idea of grabbing global leadership on 5G is potential honey to the administration of President Donald Trump, which has taken steps to preserve American competitiveness in wireless technology. It has moved to curb Chinese inroads in U.S. communications technology and even suggested, but then dropped, the idea of creating a national, government-built 5G network in order to seize leadership of the emerging technology.
At the U.S. Federal Communications Commission, which will have to approve the deal, Chairman Ajit Pai has constructed an entire regulatory framework under the rubric “Leading the World Toward a 5G Future.” The agency reviews mergers based on whether they are "in the public interest."
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“The rise in the government interest in creating an attractive investment climate for 5G deployment improves the odds" for T-Mobile’s purchase of Sprint, Blair Levin, a Washington-based adviser to New Street Research, said in a March 15 note.
Antitrust authorities at the Justice Department, led by Assistant Attorney General Makan Delrahim, will judge whether a deal harms competition.
Two Democrats in the House called Monday for a hearing on the deal, saying it would trigger ripple effects for all mobile phone users. The request came from Representative Frank Pallone, of New Jersey, the top Democrat on the Energy and Commerce Committee, and Representative Mike Doyle, of Pennsylvania, the top Democrat on the communications subcommittee.
Washington Merger Tour Legere said that he and Sprint Chief Executive Officer Marcelo Claure would come to Washington on Tuesday, “to talk to everybody who would love to hear the details.” Leaders of merging companies often meet with regulators to lobby for their deals before formally filing needed paperwork.
During the Obama administration, the Justice Department and FCC rejected an earlier merger attempt by Sprint and T-Mobile, arguing that four national competitors are needed to ensure competition. Pai hasn’t insisted on four, saying he remains open about the number of major players in the American mobile market.
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The promise of 5G technology was little mentioned when regulators stymied the Sprint and T-Mobile merger attempt in 2014. Since then the technology has become a refrain in FCC filings, and companies say they’re on the cusp of delivering service. Verizon, for instance, plans to test 5G in 11 markets this year, working with equipment partners including Ericsson AB and Samsung Electronics Co.
Full 5G service isn’t expected to be commercially available until 2020.
The new T-Mobile will spend about $40 billion over 3 years on network integration, expansion and new 5G construction, executives said as they outlined the deal on Sunday. This will create thousands of new jobs, particularly construction in rural communities, the companies said. Over the past three years, Sprint and T-Mobile spent $31.4 billion on capitalexpenditures.
Not everyone is persuaded.
“It’s completely unsubstantiated,” Gigi Sohn, a fellow at the Georgetown Law Institute for Technology Law & Policy and a former FCC official, said in an interview. “They’ll promise the sun, the moon and the stars to play upon this desire of the Trump administration to be Number One in 5G.”
Doubts Affect Market The promise of 5G may not be enough to carry the deal before regulators who may frown on the loss of competition from combining two of the top four mobile providers. Doubts helped send shares of both companies down in Monday trading.
Sprint has struggled with debt, and has sold bonds on the junk market. While there have been improvements in areas such as subscriber numbers, the company has booked an entire decade of losses. After cutting network spending for two years, Sprint is lagging behind its rivals on service quality in most areas of the country.
Legere says that will change.
“‘We are going to have an impact on America,” Legere said. Rivals such as Verizon, AT&T and Comcast Corp., which has begun offering wireless service, will have to respond, he said. “We are going to drag the rest of the players kicking and screaming to the prize, which is American leadership” in fifth-generation wireless networks.
The argument got a skeptical reception from Tom Wheeler, the former Democratic FCC chairman who played a role in stopping the companies’ 2014 merger dalliance. Officials cited T-Mobile’s role as a disruptive price-lowering competitor that remained independent because the government kept AT&T from buying it.
“They are proposing sacrificing the known consumer benefits of lower prices and expanded services for the unknown of 5G,” Wheeler said in an email.