T-Mobile and Sprint say no to merger — yes, again

Citing an inability to find common ground, T-Mobile and Sprint officially declared an end to merger talks on Saturday, ending the latest long ballet dance between the two telecom giants. A merger would have given the combined company 130 million customers and left the United States with three major cellular carriers instead of four, dramatically reshaping the communications landscape.

“We have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile’s shareholders compared to our outstanding stand-alone performance and track record,” John Legere, President and CEO of T-Mobile US, Inc., said in a press release about the merger.

He promised business as usual for T-Mobile, regardless of the company’s shifting corporate strategy. “Going forward, T-Mobile will continue disrupting this industry and bringing our proven Un-carrier strategy to more customers and new categories — ultimately redefining the mobile Internet as we know it.”

Sprint President and CEO Marcelo Claure echoed the sentiment: “While we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination….We are determined to continue our efforts to change the wireless industry and compete fiercely.”

Will they or won’t they?

Until now, reports had suggested that the merger was all but certain. Cracks in the dam began to appear earlier in the week, notably in a report from Nikkei that the board of directors for Softbank (which owns Sprint) was concerned over who would control the combined entity. Those doubts likely helped derail the plans altogether, marking the second time a potential merger between the two companies failed.

According to earlier Reuters reports, T-Mobile and Sprint sought a merger without any immediate asset sales. This would have allowed the two companies to keep the maximum amount of their respective “spectrum holdings and cost synergies … before regulators ask for concessions.”

The companies planned on touting the benefits for customers as motivation for the merger, notably the improvement of 5G wireless technology (5G promises greater, pervasive connectivity and faster speeds, but development is costly and complicated).

This approach suggested a recognition of the significant regulatory hurdles from U.S. antitrust and telecommunications regulators. After all, these are the third- and fourth-largest American wireless service providers we’re talking about here.

“It is better for Sprint and T-Mobile to listen and learn the concerns of regulators first, and see whether there is anything that can be done to address those concerns,” MoffettNathanson research analyst Craig Moffett said of the impending deal.

A ‘stock-for-stock’ merger

The parent companies of T-Mobile and Sprint — Deutsche Telekom and Softbank, respectively — have been in “frequent conversations” about a “stock-for-stock” merger. Most recently, two sources close to the matter claimed SoftBank would own 40 to 50 percent of the combined company, while Deutsche Telekom would own a majority stake, Reuters reported in late September.

Previously, Bloomberg and German newspaper Handelsblatt reported that Deutsche Telekom had made strides toward a merger. Those reports also claimed that the company wanted an all-stock deal with Sprint, as well as a contractual agreement to continue T-Mobile’s current marketing strategy after the two carriers combined.

Regulatory hurdles ahead

When the merger was first rumored months ago, SoftBank reportedly hesitated to push forward because of strict Federal Communications Commission (FCC) rules prohibiting rival carriers from conspiring during airwave auctions. Analysts said the risk of rejection by Department of Justice antitrust regulators would play a role in the final decision.

Changes at the FCC and Justice Department seemed to remove obstacles to the merger’s approval.

“Sprint-T-Mobile is a lot more plausible than it was a year ago,” Harold Feld, senior vice president at the policy group Public Knowledge, told Bloomberg at the time. “It’s not a slam dunk. There are real issues. But at the same time, we clearly have an administration that’s sending signals they would be a lot more open to it.”

Merging with the ‘Un-carrier’

Sprint’s biggest merger motivations were subscribers and coverage.

Sprint has been playing subscriber catch-up with rival carriers AT&T, Verizon, and T-Mobile. In July, T-Mobile cemented its position as the nation’s third-largest carrier with 1.3 million customer additions (69.6 million total), while Sprint gained 61,000 (53.7 million).

The carrier continues to lag behind T-Mobile in terms of coverage. Last year, OpenSignal reported that Sprint took last place in all categories ranging from speed to latency. T-Mobile had an increase in 4G coverage at 81.2 percent — neck and neck with AT&T at 82.6 percent — and trailed closely behind Verizon.