Sprint and T-Mobile Are Said to Be Close to a Merger to Compete at the Top

Sprint and T-Mobile are hoping to get it right this time.

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CECILIA KANG, New York Times

Sprint and T-Mobile are hoping to get it right this time.

The two wireless carriers are nearing a deal to merge, according to two people briefed on the matter, and an announcement could come as soon as this weekend.

The companies were at the bargaining table twice before, most recently last year. If a deal goes through now, it will create a wireless giant with more than 127 million customers — large enough to challenge Verizon and AT&T, which have long dominated the market. As a result, three companies would control almost the entirety of the U.S. wireless industry.

A deal would allow both carriers to stay competitive as the costs of retaining subscribers rose and bigger rivals built out next-generation wireless networks.

Service providers are preparing to spend billions to expand their 5G infrastructure, money that Sprint and T-Mobile are harder pressed than the competition to spend. Sprint has about $32 billion in debt on its books, while T-Mobile generates a small fraction of the cash that Verizon and AT&T do.

At the same time, traditional companies increasingly find themselves competing against newer contenders looking to chip away at the wireless market, including Comcast and Charter Communications, cable companies that have begun offering wireless service plans to their subscribers.

Regulatory hurdles and disputes over control of a combined organization halted previous merger discussions. The current negotiations between Sprint and T-Mobile are not complete, said the people briefed on the matter, who spoke on the condition of anonymity because the deal was confidential. The timing could change, or the talks could fall apart, they cautioned.

A merger would fulfill a long-frustrated dream of Sprint’s majority owner, SoftBank of Japan. When SoftBank took control of the U.S. carrier in 2013, its ambitious leader, Masayoshi Son, boasted of defeating Verizon and AT&T in their own backyard. But to do so, he needed a bigger platform than Sprint alone and quickly began talks to buy T-Mobile, which, at $55 billion, has more than twice the market value as Sprint.

But in two rounds of talks, in 2014 and last fall, Son failed to complete a deal with T-Mobile’s controlling shareholder, Deutsche Telekom of Germany.

The stakes are big for both sides, but especially for Son. Sprint has lost billions of dollars and millions of subscribers, while taking on debt, since SoftBank took it over. By contrast, T-Mobile, buoyed by a hugely popular unlimited data plan and an aggressive marketing campaign, leapt over its beleaguered rival to take third place in the U.S. wireless rankings.

Son and SoftBank have weighed several potential — if implausible — combinations for the telecom, including flirting with a deal with Charter. But the goal has always been to put the country’s third- and fourth-largest carriers together.

“This deal is probably more necessary for Sprint than T-Mobile,” said Amy Yong, a research analyst at Macquarie Capital.

This time, Son and Deutsche Telekom appear closer to ironing out an agreement over control of a combined carrier, the people briefed on the matter said. Deutsche Telekom would own roughly 42 percent of the new company but retain a majority of its voting shares, the people said.

Executives from Sprint and T-Mobile declined to comment.

Even if a deal is struck, the two sides would face regulatory scrutiny.

A merger would have to be reviewed by the Federal Communications Commission, which would determine if the deal would create too much concentration within the wireless industry and if it would be in the public’s best interest.

Deals of this size also receive regulatory reviews by antitrust officials at the Justice Department or Federal Trade Commission.

Tom Wheeler, the FCC’s chairman in 2014, announced then that he would not allow the number of national wireless carriers to shrink to three from four. The Justice Department made similar comments at the time, saying consumers would be harmed without four options for mobile providers.

But the regulatory picture has grown hazier under the Trump administration. SoftBank executives met last year with senior members of the administration to assess potential Sprint deals, while Son has courted President Donald Trump with the promise of $50 billion worth of investments in U.S. companies.

The FCC’s chairman, Ajit Pai, criticized the previous administration’s strict approach to competition in the wireless industry.

“I don’t think any regulator who embraces regulatory humility and intellectual honesty about economics can say whether three or four or five is the optimal number,” Pai said in a 2017 interview with Recode, referring to the number of carriers operating with any scale in the United States.

The Justice Department, whose antitrust division is led by Makan Delrahim, has been hard to predict, analysts say. Delrahim is suing to block AT&T’s purchase of Time Warner, saying that the deal would hurt competition and lead to higher consumer prices.

Officials from the FCC and the Justice Department declined to comment. Consumer groups could protest the deal. Sprint and T-Mobile are seen as important alternatives to the largest carriers, and have offered unlimited data plans while others have limited them. Sprint and T-Mobile were also the first carriers to allow people to unlock their phones.

These have been widely seen as pro-consumer moves, and T-Mobile in particular has shown little need to merge with Sprint, said Gigi Sohn, a former senior adviser to the FCC.

“The pricing and marketing actions of T-Mobile have pushed AT&T and Verizon to change their own pricing, data plans and marketing for the benefit of consumers,” she said.

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