The Department of Justice (DoJ) approved the merger of America’s top two phone carries T-Mobile US, Inc. TMUS and Sprint Corporation S on Friday, Jul 26. Worth $26.5 billion, the deal was approved by the DoJ with some conditions. Both companies have been in talks since April 2018 to merge but got embroiled in flak and the deal got delayed by debate.
As per the terms of the deal, T-Mobile will absorb the Sprint brand, with the latter’s subscribers now becoming customers of the former. Sprint’s prepaid customers will hence forth become DISH Network customers. Though DoJ has given a green signal, the deal cannot be signed as yet because of the pending lawsuits filed by 14 state attorneys general.
Merger Approved, Strings Attached
Federal regulators had opposed the deal a year earlier as the merger would reduce competition and raise prices. But when DISH Network Corporation DISH confirmed its intention to expand beyond satellite television and take part in the transformative transaction, things changed.
Assistant Attorney General Makan Delrahim of DoJ’s antitrust division stated that the deal will increase output as “large amounts of currently unused or underused spectrum” will be available and introduce Dish as one of the competitors. The terms of the deal sanctions DISH with “assets and transitional services” to become a leader in network provider.
Is DISH a Winner?
With traditional pay TV demand declining by the day, the deal seems to be hugely beneficial for DISH. Notably, DISH will be paying $1.4 billion for Sprint’s prepaid service that includes Boost Mobile, Virgin Mobile and Sprint prepaid. It will also pay $3.6 billion to T-Mobile for 20,000 cell sites, hundreds of retail locations and a provision to access T-Mobiles’ network for seven years.
The agreement establishes Dish as a disruptive force in the wireless industry, gaining 9.3 million customers in all 50 U.S. states and Puerto Rico. As a bonus, DISH will now gain access to 400 additional employees and an independent retail network supporting 7,500 retail outlets. DISH can also take over any cell tower, network equipment and retail asset decommissioned as part of the merger.
Major mobile carrier services including AT&T Inc. T, Verizon Communications Inc. VZ), T-Mobile and Sprint have gained 20.3%, 2%, 29.5% and 33.7%, respectively, on a year-to-date basis. Each of these stocks has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Consumers — the Sufferers?
Dish Network aims to reach out 70% of the U.S. population by 2023, changing the face of domestic telecom service. Jessica Melugin, associate director for technology and innovation at Competitive Enterprise Institute stated “5G options for consumers in the future and a leg up for U.S. standards to become the default in the new technology.”
A rise in price for better service is foreseen. T-Mobile and Sprint have promised not to raise prices for three years, which critics claim to be only a short-term measure. However, as per terms of the deal existing customers of both carriers will not face hurdles in switching networks.
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