On Apr 1, T-Mobile US, Inc. TMUS officially completed its long-pending $26.5-billion merger with Sprint Corp. to create a new wireless giant that rivals AT&T T and Verizon VZ in terms of subscribers. The deal, which allows T-Mobile and Sprint to join their high- and low-band spectrum for a faster nationwide 5G rollout, will undeniably disrupt the competitive landscape of the U.S. telecom market.
The Bellevue, WA-based wireless carrier — a subsidiary of Deutsche Telekom AG DTEGY — also completed its planned chief executive officer transition from John Legere to Mike Sievert ahead of schedule. Legere will continue as a member of the board for the remainder of his term, through the annual meeting of shareholders scheduled in June 2020.
On Feb 11, T-Mobile received a green signal in the Federal Court for the above-mentioned merger. Repudiating a lawsuit by a group of states, the court ruling cleared the decks for creating a strong rival in 5G wireless services. State attorney general sued to block the union, stating that the merger will hurt competition and add billions to consumers’ bills. While Judge Victor Marrero approved the deal without stipulations, the Department of Justice and Federal Communications Commission earlier lent a nod when the carriers agreed to sell some assets to DISH Network Corp. DISH.
This, in turn, will put DISH in a position to replace Sprint as the fourth major mobile carrier in the United States. Per the deal, DISH gets a seven-year wholesale agreement that will enable it to sell T-Mobile wireless service under its brands. In response, T-Mobile stated that adding Sprint’s spectrum, the airwaves that carry phone calls and data signals, will boost its network and make its service available to consumers at lower prices. It had also promised regulators not to raise prices for three years.
T-Mobile secured an aggregate loan worth $23 billion from a group of 16 banks to successfully close the transaction, which raised investors’ morale amid the coronavirus-triggered market volatility. Banks provided a sum of $19 billion through a 364-day bridge loan, adding to a $4-billion seven-year term loan. Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group, Inc. GS, Morgan Stanley MS and Royal Bank of Canada are those with the largest exposure.
Customer is King
T-Mobile has been investing in building its nationwide 4G LTE network, which covers more than 327 million U.S. citizens. It continues to deploy 600 MHz spectrum, which covers 248 million people and is live in 8,900 cities and towns across 49 states and Puerto Rico. New T-Mobile’s commitment to building the world’s best nationwide 5G network will likely bring super-fast speeds to urban areas and underserved rural communities.
The company’s network will be able to offer unmatched value to consumers, with better service at lower prices. The enhanced scale and financial strength of the combined entity will drive a planned investment of $40 billion into its network and business over the next three years. Moreover, synergies achieved from the integration have the potential to unlock massive scale and deliver greater value to stockholders.
T-Mobile’s network will have 14 times more capacity in the next six years than on a standalone basis, which enables it to leapfrog the competition in network capability and experience. Customers will have access to average 5G speeds up to eight times faster than current LTE in a few years and 15 times faster over the next six years.
Within six years, the New T-Mobile is expected to provide 5G to 99% of the U.S. population and average 5G speeds above 100 Mbps to 90% of the population. New T-Mobile’s business plan is built on covering 90% of rural Americans with average 5G speeds of 50 Mbps, up to two times faster than broadband.
In December 2019, the company launched a nationwide 5G network, including prepaid 5G with Metro by T-Mobile. Its customers also have access to the nationwide 5G network at no additional cost. T-Mobile’s 5G already covers more than one million square miles, 200 million people and more than 5,000 cities and towns across the United States. The company intends to blend T-Mobile’s foundational layer of 5G with Sprint’s 2.5 GHz spectrum to create a 5G network for everyone.
Clearly, the frontrunners now have more to worry about as the New T-Mobile plans to offer the same services at a discounted rate for three years. Its 5G network is likely to bring down the cost of delivering a gigabyte of data, providing enormous economic incentives for the company to lower prices. The New T-Mobile will compete for consumers at all price points. Customers, including prepaid and Lifeline, will have access to the same 5G network and services. T-Mobile’s shares have more room to run once this integration begins to realize synergies.
T-Mobile has a long-term earnings growth expectation of 17.7% compared with 9% for the industry. The company has a trailing four-quarter positive earnings surprise of 19.5%, on average. T-Mobile currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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