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Can Sprint really buy T-Mobile?

Can Sprint really buy T-Mobile?


Maybe, but it won't be easy

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T-Mobile Sprint merger
T-Mobile Sprint merger

A resurgent T-Mobile underpinned by aggressive pricing and a boisterous CEO, a new Sprint backed by hyper-fast data and a Japanese telecom giant, and the duopoly — AT&T and Verizon — up to its usual antics: just when it seemed like we'd finally reached some semblance of stability in the US wireless market, we hear the news from a Wall Street Journal report that Sprint may be ramping up to make a bid for T-Mobile. If the report holds water and Sprint elects to proceed, we could be in for an unexpectedly turbulent 2014 (and beyond) for the American wireless landscape, as regulators and executives spar over the viability and wisdom of allowing the United States' number three and four carriers to combine. And who would win that battle?

This isn't T-Mobile's first rodeo

Of course, this isn't T-Mobile's first rodeo. The network, owned by German telco Deutsche Telekom, is still coming down from the aftermath of AT&T's bid to buy it in 2011 for some $39 billion — a bid that failed in spectacular fashion at the hands of the Julius Genachowski-led FCC and the Department of Justice. At the deal's announcement, AT&T filed a preposterous list of claims about T-Mobile's impotence and irrelevance as an independent entity, saying it had "no clear path" to launch LTE service and didn't offer a "particularly compelling portfolio of smartphone offerings." Of course, two and a half years later T-Mobile now offers LTE and sells flagship devices like the iPhone 5S, Galaxy S4, Nexus 5, and Moto X.

Whether the government would allow a smaller carrier — Sprint has roughly half as many subscribers as AT&T — to take a stake in T-Mobile is now the billion-dollar question. For the FCC, it's primarily a question of whether a consolidation would help or harm competition. Two years ago, with Sprint and T-Mobile both hemorrhaging subscribers, teaming up might have put the two in a better position to square off against the Big Two; since then, though, the smaller carriers have gotten their desperately needed LTE efforts off the ground. T-Mobile has started adding customers; Sprint hasn't, but it's now backed by SoftBank's wallet and ambition. In other words, it's fair to call T-Mobile and Sprint more "competitive" now, at least by some metrics — and that makes a merger, which would bring the United States down to just three national wireless providers, less appealing in the eyes of competition-minded regulators.

There's also a changing of the guard to consider; Julius Genachowski has left the FCC since his agency rejected the AT&T deal, and former lobbyist Tom Wheeler is in. The new chairman talks a big game about holding competition paramount in a functional wireless market: "In a competitive market the speed, price, capacity, quality and choice of network services should show constant improvement," he writes in his mini-book, Net Effects, released last week. It's hard to see how an approved acquisition would lead the nation's "choice of network services" to "show constant improvement."

"In a competitive market the speed, price, capacity, quality and choice of network services should show constant improvement."

But regulation aside, none of this touches on the technical nightmare that engineers at Sprint and T-Mobile would face in combining their networks. The merged company would be dealing with four distinct bands of spectrum and effectively four disparate network technologies (with Spark, Sprint alone operates two flavors of LTE across three bands). The vast majority of smartphones don't support that hodgepodge — and even if they did, there'd still be a duplication of voice service on Sprint's CDMA and T-Mobile's UMTS. While it's true that T-Mobile's acquisition of MetroPCS and AT&T's purchase of Leap at least set a precedent for GSM carriers successfully integrating CDMA ones, a Sprint-T-Mobile tie-up would bring it to an entirely new level of complexity.

As expected, public interest groups are already coming out against a possible deal: "We need more, not less competition," writes Public Knowledge attorney John Bergmayer. Of course, FCC Chairman Wheeler has expressed the exact same sentiment — it's all a matter of what, precisely, "competition" means.