It’s seems that Sprint (NYSE:S) is taking the advice of U.S. antitrust officials and reconsidering its potential merger with T-Mobile US (NYSE:TMUS), a consolidation that Sprint executives were hoping would allow the company to better compete with Verizon (NYSE:V) and AT&T (NYSE:T), currently the top two mobile carriers in the country.
Last week, officials at the Department of Justice and the Federal Communications Commission both said they were opposed to such a merger. Sprint Chairman Masayoshi Son and CEO Dan Hesse met with officials at the FCC on February 3 and were surprised by the level of opposition the regulators expressed regarding the deal. Earlier in January, a meeting with the Justice Department’s Antitrust Division resulted in a similar warning.
Sources familiar with the situation told the Wall Street Journal that even after hearing of the regulators’ very public opposition to the potential merger, Son may still decide to proceed with the deal. The sources noted that if Sprint decides not to follow through with its acquisition of T-Mobile, then the company, currently the third-largest mobile carrier in the United States, is left with few expansion opportunities.
The Justice Department and the FCC have repeatedly expressed their views that the current wireless market is more competitive with four carriers since the organizations’ decision to block AT&T’s move to merge with T-Mobile in 2011. The sentiment echoed over and over again by regulators has been that the U.S. needs four major carriers.
But Sprint believes that a merger it and T-Mobile would work out differently, allowing the combined companies a better chance of competing against what T-Mobile CEO John Legere has pegged as the “duopoly” of Verizon and AT&T.
Senior analyst at MoffettNathanson, Craig Moffett, wrote in a research note last week that “The Justice Department and the FCC have signaled not only that a deal can’t get done but that they don’t want to see one attempted,” per the Wall Street Journal.
Son has said that he is eager to pursue the deal but won’t attempt it if it is “outright impossible,” according to sources who spoke with the Journal. If Sprint does decide to follow through, it’s likely the company would take several weeks or perhaps longer to mull over strategy and perfect its arguments, the sources reported to the publication.
One of those arguments is that given the strength of AT&T and Verizon, without a merger, it’s unlikelyat Sprint or T-Mobile will be able to build high-speed wireless networks capable of competing with the two massive market leaders.
Sprint and T-Mobile’s shares spiked following initial rumors of the deal but have since fallen again due to the regulators’ public opposition of the merger.