It’s almost hard to believe that T-Mobile ($TMUS) is now one of the major mobile phone service providers in the United States. Several years back, the company was in fourth place behind AT&T, Verizon, and Sprint. Customers constantly complained about their reception and service. They didn’t even officially permit iPhones on their network until four years ago.
These days, T-Mobile’s network is pretty great. They have millions more customers than Sprint, which caused them to become the third-best mobile service provider. Their fast-talking, controversial CEO, John Legere, constantly proposes and introduces incentives and features to new and existing T-Mobile subscribers, including cheaper plans and the occasional free swag.
Sprint ($S), on the other hand, is doing okay. As the fourth-largest mobile service provider, the company has around 60 million subscribers (though around 13 million less than T-Mobile). Yet the century-old company used to have many more subscribers instead of being a mere afterthought in the mobile space.
Both mobile companies have casually approached the topic of merging for the last few years. When T-Mobile started becoming a viable alternative to AT&T and Verizon, their shareholders urged the company to consider an acquisition offer from a larger, more capable corporation who could make them even more profitable. At the same time, Sprint was purchased by SoftBank, a Japanese conglomerate, and retooled to become a worthy competitor to the other companies in the sector.
Now, those talks might become a bit more than barroom chatter. Sprint and T-Mobile are once again discussing the possibility of merging into one giant mobile provider to take on AT&T and Verizon. But what would this alleged merger mean for shareholders? More importantly, what does it mean for consumers?
A Sprint and T-Mobile merger could happen (maybe).
Deutsche Telekom, T-Mobile’s parent company, is open to merging their U.S. subsidiary with anyone, not just Sprint. SoftBank, Sprint’s parent company, allegedly contacted DT about a possible merger, according to Bloomberg. Should both companies actually follow through with their talks and attempt to merge their companies, they’ll undoubtedly face some regulatory hurdles. This is because a merger of both companies could make them nearly as valuable as AT&T with almost as many paying customers, raising some anti-competitive red flags. (SoftBank, however, is prepared for such a blockage.)
What would a merger mean for shareholders?
Shareholders like mergers for the most part. Instead of owning shares in a company, they’ll own shares in a much larger company once the merger is completed. This could mean that the value of their investment increases when the merger is finalized. It could also mean that the company will buy back shares for more than they’re currently worth.
By combining into two companies, Sprint and AT&T would reduce overhead by eliminating redundant positions (read: layoffs). They would also be well-positioned to aggressively compete with AT&T and Verizon, possibly moving even further in the mobile provider rankings as they add more customers. This would inevitably increase the value of the company, reduce costs, and make shareholders happy.
What would a merger mean for consumers?
A merger means one fewer company. Fewer companies means less choice. Sprint and T-Mobile are known for their low-cost, competitively priced mobile plans. If they become bigger than their costly competitors, they might not be incentivized to offer such low rates. This is one of the reasons the T-Mobile/AT&T merger fell through.
Should you invest in either company?
T-Mobile is doing great right now. The company’s stock is up 13.98% this year so far, and 60.98% within the last year. Sprint, on the other hand, is down 5.58% so far this year, though up 127.79% in the last year. Both companies’ stocks would undoubtedly soar once a merger becomes official. If you think a merger will happen and both companies will benefit from it, do your research before you decide to invest. If you think both companies will continue as is, consider investing elsewhere.