Sprint (NYSE: S) either has a bright future becoming part of T-Mobile (NASDAQ: TMUS), or a very bleak one on its own. The fate of the company rests in the hands of federal regulators, who get to decide whether to approve the pending merger between the two companies.
Where does Sprint stand now?
The No. 4 wireless carrier has made a deal to merge with T-Mobile, but it still has to operate on its own while it awaits regulators' decision on the merger. There's no guarantee that the deal will be approved -- and if it's denied, Sprint would be forced to continue operating on its own.
That's a bleak prospect for the company, which would probably struggle to come up with the capital it needs to invest in upgrading its network. In addition, Sprint will be challenged to maintain its customer base, which it has done largely by offering cut-rate deals.
If the merger fails, Sprint would likely still need a partner. That may be possible, but the company talked to -- and was rebuffed by -- Charter Communications and Comcast, its two most-logical potential partners. Take this with a grain of salt, because Sprint wants the merger to go through, but the company has told the Federal Communications Commission (FCC) flat-out that it may not survive if the merger is not approved.
T-Mobile CEO John Legere and Sprint Executive Chairman Marcelo Claure helped make the deal happen. Image source: Getty Images.
Will the deal be approved?
An earlier merger attempt between Sprint and T-Mobile during Barack Obama's presidency was abandoned when the FCC made it clear that it would not support a drop in the number of major carriers from four to three. Things have changed since then, with Republicans -- who are generally more supportive of mergers -- being in charge, but that's certainly not a guarantee of approval.
Sprint and T-Mobile have argued that they need to combine resources in order to compete with Verizon and AT&T. T-Mobile CEO John Legere laid out what the combined company would be able to do during T-Mobile's third-quarter earnings call, saying: "This combination will enable us to build America's best nationwide 5G network. It is both broad and deep and it will ensure that America retains its global leadership in wireless and that American-based companies and entrepreneurs are at the forefront of the explosion of innovation and economic growth that 5G is going to [bring]."
Legere also argues that having a more competitive T-Mobile will "supercharge competition in wireless, broadband and beyond, which will result in lower prices for consumers and create jobs starting on day one."
However, Legere was also very careful to make it clear that he was not trying to rush regulators along. He noted: "Now, we have a lot of respect for the regulatory process, which is not yet finished. We have completed a number of major milestones and remain optimistic and confident that once the facts are reviewed by regulators, they will recognize the significant pro-competitive and pro-consumer benefits of this combination."
Where will Sprint be in one year?
It's reasonable to guess that Sprint will be a part of T-Mobile a year from now -- probably with some concessions made to regulators. It's also possible that the Sprint brand could be on its way out in favor of the T-Mobile name, though combining the different technologies used by the two companies will likely take many years.
Sprint may not die without the merger, but it will be in rough shape, with limited potential partners and compromised bargaining power. It's hard to see federal regulators allowing that to happen, even though the merger will technically reduce choice for consumers. It's almost certainly better to have three very strong players than two very strong ones, one in decent shape, and another fighting for survival.
More From The Motley Fool
- 10 Best Stocks to Buy Today
- 3 Stocks That Are Absurdly Cheap Right Now
- 5 Warren Buffett Principles to Remember in a Volatile Stock Market
- The $16,728 Social Security Bonus You Cannot Afford to Miss
- The Must-Read Trump Quote on Social Security
- 10 Reasons Why I'm Selling All of My Apple Stock