What's going on?
According to various media reports, a proposed merger between America’s third- and fourth-largest mobile network operators, Sprint and T-Mobile US, is falling apart…
What does this mean?
Sprint and T-Mobile share a problem – it’s tough for them to compete with market big-shots AT&T and Verizon. A combined company would benefit from significant cost savings and would have one less competitor.
But SoftBank, the Japanese tech conglomerate that owns a majority of Sprint, now reportedly plans to ditch discussions with Deutsche Telekom, the German majority owner of T-Mobile. Talks were at an advanced stage, with a broad framework for the deal already agreed. The breakdown of talks stems from SoftBank’s concerns about ceding control of the combined company to Deutsche Telekom.
Why should I care?
The bigger picture: A merger between Sprint and T-Mobile has been on the table for years.
Sprint and T-Mobile attempted a merger a few years ago, but SoftBank also walked away then, saying that it feared competition regulators would oppose the deal. This time around, there was optimism that a new administration in Washington would be open to the prospect. The problem seems to be that Sprint’s share price has fallen a fair bit in recent months, meaning SoftBank would likely own less of the combined company than it had hoped. There’s also a chance that this move is simply a negotiating ploy by SoftBank as it attempts to get a better deal.
For markets: The news reverberated around the industry and beyond.
Sprint’s stock fell 9% on the day while T-Mobile’s fell 5%. But the news reverberated around the sector and even the bigger players, Verizon and AT&T, saw their share prices fall, as both had expected to benefit from having one less competitor. On the other hand, the news appeared to benefit companies that mobile network operators have to negotiate with, since a combined company would have had more bargaining power: firms that own cell phone towers, like American Tower and SBA Communications, saw their share prices rise.