Sprint, T-Mobile Merger Could Depend on Trump Staying Out of It

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(Bloomberg) -- Add politics to the list of challenges that could derail another attempt to combine Sprint Corp. and T-Mobile US Inc.

Merger talks between Tokyo-based SoftBank Group Corp., which owns almost 85 percent of Sprint, and Deutsche Telekom AG, the controlling owner of T-Mobile, are underway. And unlike two prior attempts, this time the deal could hinge on whether President Donald Trump can stay out of the approval process.

Sprint needs a deal to help stop a decade-long stretch of losses, and T-Mobile, the industry leader in subscriber gains, has seen growth slow for the past three years. As competitors, they’ve driven down consumer costs and pressured the industry to improve service.

Both have argued that only through a combination can they build faster networks, cut $30 billion in costs and compete more effectively against giants AT&T Inc. and Verizon Communications Inc. The political problem is that a tie-up would bring heavy job cuts and little direct benefit to consumers.

“Sprint and T-Mobile are going to have to put something forward that’s much more friendly,” said Amy Yong, an analyst with Macquarie Capital USA Inc. “They are going to have to package it in a way that Trump would like it.”

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Any new proposal would have to address many of the concerns that the Justice Department and the Federal Communications Commission had almost four years ago, when they rebuffed a previous attempt by Softbank Chairman Masayoshi Son to merge the two companies. At that time, both agencies took the position that competition could be harmed if the number of national carriers shrank to three from four.

But that was before the Trump administration got more active in deal blocking. The Justice Department has sued to block AT&T’s takeover of Time Warner Inc. after Trump appointee Makan Delrahim, head of the agency’s antitrust division, said the deal would harm consumers. More recently, Trump blocked the largest tech deal ever when he killed Singapore-based Broadcom Ltd.’s attempted purchase of Qualcomm Inc. last month. The move was to prevent China from gaining an edge on the U.S.

While Trump was thought to be pro-business and pro-deal before he became president, many of his moves haven’t fit that pattern. He has welcomed executives like Son and AT&T Chief Executive Officer Randall Stephenson to his New York office to echo his enthusiasm for more jobs and investment, yet at other times he’s taken the populist approach that got him elected.

During an October 2016 campaign stop in Gettysburg, Pennsylvania, he said the AT&T-Time Warner deal was “an example of the power structure I’m fighting.”

The chances for approval are a toss-up, Craig Moffett, an analyst with MoffettNathanson, wrote in a note Wednesday. There’s a potential window open for the deal sometime before the 2018 mid-term elections and the imposed quiet period that halts strategy discussions between companies participating in the FCC’s next airwave auction, Moffett said.

Still, even if the two companies can iron out the details, the deal doesn’t necessarily add up to a political win.

”T-Mobile plus Sprint doesn’t equal populism,” said Kevin Roe, an analyst with Roe Equity Research LLC. “If it’s not populist, Trump won’t do it.”

©2018 Bloomberg L.P.

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