Would a T-Mobile-Sprint Merger Increase Wireless Competition?

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Sprint (NYSE:S) thinks the way for it to compete better with AT&T (NYSE:T) and Verizon (NYSE:VZ) is to merge with T-Mobile (NYSE:TMUS).

Sprint wants to buy T-Mobile. This would combine the third- and fourth-place U.S. mobile carriers into a single carrier in a market dominated by Verizon and AT&T. It would also reduce the number of American nationwide mobile carriers down to three. Sprint is arguing that this reduction in carriers would help boost competition between carriers.

Sprint’s CEO, Dan Hesse, told CNET that a merger between Sprint and T-Mobile would help boost competition. A combined Sprint and T-Mobile network would be large enough for Sprint to have the incentive and infrastructure to reach into more suburban and rural markets. Currently, both companies rely on business in more urbanized regions since, it’s what they have the infrastructure for at the moment. The larger Verizon and AT&T markets can reach more rural customers due to the size and resources of their larger networks.

The idea of boosting competition is a powerful tool for Sprint its lobbying efforts to get American regulators to approve a merger. The approval is needed for the merger to proceed, thanks to American antitrust laws. These laws say that businesses need federal approval before they can proceed. Like many companies attempting to get this approval, they have gone to the nation’s capital in a bid to sway regulators.

Sprint’s parent company, Softbank, lobbied in Washington, D.C., in hopes that its efforts will sway the Department of Justice and the Federal Trade Commission into approving the merger. The odds may not be in Sprint’s favor. These same two agencies previously blocked AT&T from purchasing T-Mobile, claiming that the merger would be anti-competitive.

Sprint has the advantage that it is not as large as AT&T, but the fate of the deal is not optimistic since, American regulators have indicated they would prefer to see four companies as opposed to three in the nationwide mobile market. That was part of their logic in blocking the AT&T-T-Mobile deal in 2011. The claim that a merger would increase competition is an appeal to those who see the merger as a way to reduce competition among wireless carriers in the American market. Whether the regulators will believe the claim is another story.

Other than waiting for the regulatory approval, Sprint is preparing for the merger. Reuters reports that the wireless carrier is in the midst of securing the financing needed to buy T-Mobile from its parent company, Deutsche Telekom AG. So far it has the approval of five global banks and a loan from parent company Softbank. Even if regulators deny the deal, Sprint still has to pay. Deutsche Telekom gets $1 billion if the deal doesn’t go through, as planned under the terms of the deal.

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