By Carl O'Donnell and Liana B. Baker
April 18 () - T-Mobile US Inc's$26 billion deal to buy Sprint Inc banked on changes in wireless technology and media streaming to win U.S. antitrust approval, but the bet now looks precarious.
Growing skepticism from the U.S. Department of Justice's antitrust staff over the impact of the merger on competition in the market will test the resolve of the companies to complete the deal that would see the top U.S. wireless carriers shrink to three from four.
The deal would be the third major attempt in less than a decade to consolidate the U.S. wireless market, after AT&T Inc's$39 billion deal to buy T-Mobile in 2011 was blocked, and Sprint and T-Mobile abandoned a previous attempt to negotiate a merger in 2014 following regulatory opposition.
If completed, the deal would create a carrier with 127 million customers that will be a more formidable competitor to the No.1 and No.2 wireless players, Verizon Communications Inc and AT&T, respectively.
"It is time to acknowledge that the odds of the deal are less than a coin toss," said Craig Moffett, a senior analyst at Moffett Nathanson, in a note.
Sprint shares are down more than 6 percent after the Wall Street Journal reported the merger is unlikely to be approved as currently structured, despite T-Mobile CEO John Legere tweeting that the premise of the story was "simply untrue".
Sprint and T-Mobile are arguing that the U.S. wireless telecommunications industry has changed substantially since 2014, when they last attempted to merge.
The changes include the development of ultra-fast 5G networks, Sprint's struggles to operate on its own given its swelling debt load, and the marriage of telecommunications infrastructure with media production, as epitomized in AT&T's$85 billion acquisition of Time Warner Inc.
These changes, as well as the companies' belief that the current Department of Justice antitrust chief, Makan Delrahim, will take a more generous view of the deal than past leadership did, gave the two companies the confidence to take another shot at merging last year, they added.
Antitrust staff at the Department of Justice have taken a skeptical stance, however. They have been asking for more information about the extent of Sprint's challenges as a standalone company, the two companies' plans to merge their wireless network, and the benefits of the merger for the companies' planned 5G network buildout, the sources said.
T-Mobile has also been very efficient in cutting prices for consumers, and there are questions within the Department of Justice whether this would continue after a merger with Sprint, the sources added.
In a sign of the regulatory challenges facing the deal, T-Mobile and Sprint did not agree to any breakup fee should regulators scuttle the merger.
KEEPING UP WITH RIVALS
Sprint, which is majority owned by Japan'sSoftBank Group Corp , has struggled to keep pace with rivals, hemorrhaging cash and losing subscribers despite price cuts designed to keep pace with T-Mobile, which has been steadily gaining market share from rivals. T-Mobile is majority owned by Germany'sDeutsche Telekom AG .
At the same time, China has poured vast amounts of money into the development of 5G networks, prompting U.S. President Donald Trump's administration to prioritize the rollout of the technology in the United States.
Meanwhile, AT&T'sTime Warner deal, and Comcast Corp and Charter Communications Inc , which developed wireless offerings to compete with T-Mobile and Sprint, increased some telecommunication companies' ability to bundle wireless plans with other offerings, including streaming video content.
That has increased pressure on T-Mobile and Sprint to increase investment in their own networks, which they can afford to do more if they gain scale through the merger.
T-Mobile acquired cable company Layer3 TV in 2017 and rolled out its own television service in 2018. That combination of content and wireless plans, the companies have argued to regulators, could position a combined company as a more serious competitor to companies such as AT&T that offer bundled services.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.