Sprint and T-Mobile Merger: Costs $1B Just to 'Ask' T-Mobile
The old saying "never hurts to ask" can't be applied to everything anymore it seems. Deutsche Telekom AG, the parent company of T-Mobile, is demanding a $1 billion breakup fee if Sprint parent company SoftBank isn't able to convince U.S. regulators that Sprint should be allowed to buy out T-Mobile.
Not only that, in case the proposed merger does go through, Deutsche Telekom also wants to retain some T-Mobile executives, according to a Wall Street Journal report. Deutesche Telekom, based in Germany, owns 67 percent of T-Mobile.
The big question is, will this happen? SoftBank chief executive and Sprint chairman Masayoshi Son has been aggressively advocating merging the No. 3 (Sprint) and No. 4 (T-Mobile) wireless carriers.
"I brought the network war and price war (to Japan). I'd like to bring that to the States," Son said at the U.S. Chamber of Commerce to industry officials in March. "I would like to provide an alternative to the oligopolistic situation that two-thirds of American households can only get access to one or two providers. I'd like to be a third alternative with 10 times the speed and lower price."
"If the government wants us to have a competitive environment, you are going to make sure that the duopoly doesn't use their prowess to crush the little guys and have this sub-1 GHz spectrum be moved all to them," said T-Mobile CEO John Legere in an interview on television show "Bloomberg West" earlier this year.
"We're all going to need better scale and capability. The question starts to be, how do you take the maverick and supercharge it? We either need more spectrum and capability, a lot more investment, or we need consolidation."
It's too bad the U.S. government doesn't see it the same way.
Approval from both the FCC and U.S. Department of Justice's antitrust division is needed for Sprint to make a bid for T-Mobile -- something that seems highly unlikely at the moment. Talks began months ago, and both institutions still express concern about consolidating the U.S. wireless market from four to three national carriers out of the fear that consumers will have to pay higher prices. Bear in mind that analysts have proven overall wireless charges have dropped when some nations go from four to three carriers.
Sprint is expected to make an offer for T-Mobile in June or July, according to some sources close to the core. However, consequences have piled up. What began a few months ago as an effort to bolster business is now tied to the future of the U.S. wireless industry. There's next year's spectrum auction to consider (the rules for the auction could change depending on whether or not a merger is approved), and let's not forget: it's not a $1 billion prenup, it's a $1 billion asking price for a date.
Would you? More importantly, can you afford it?
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