Sprint-T-Mobile merger questions: Will regulators OK it? And, Legere as CEO?

Merger would create a larger No. 3 carrier, but number of nationwide carriers would fall from four to three

With reports out this week that Sprint and T-Mobile US are planning to announce a $32 billion merger this summer, two big questions linger: Would federal regulators approve the deal? And will T-Mobile CEO John Legere run the combined company?

Both the Federal Communications Commission and the U.S. Department of Justice would need to sign off on the agreement. In 2011, a mega deal by AT&T to buy T-Mobile was nixed by the FCC and DOJ officials, who concluded the deal was anticompetitive, and that keeping the four national carriers, Verizon Wireless, AT&T, Sprint and T-Mobile, instead of reducing that number to three, was in the public interest.

As for who would lead the combined company, unnamed parties to the talks have said T-Mobile's outspoken CEO John Legere would take the top job. Sprint CEO Dan Hesse has said in response that he wouldn't mind not taking the post, citing his age of 60 and his plans to do other things.

Sprint is about 80% owned by Japan's Softbank, and Softbank CEO and billionaire Masayoshi Son will figure prominently in any leadership decisions.

What follows are some insights, including comments from analysts, on what might happen in coming days and weeks, assuming the deal is formally announced.

How big would the merged company be?

A combined entity would add Sprint's 55.4 million wireless subscribers to T-Mobile's 46.7 million for a total of just over 102 million. Both AT&T and Verizon are nearly matched in wireless subscribers and now have 213 million wireless subscribers when combined.

While Verizon is a larger company in financial terms than AT&T with 35% of the nation's telecommunications market share, it now has 102.8 million wireless subscribers and 21 million landline accounts. That's just behind AT&T's 110.4 million wireless and 28 million landline customers. AT&T has about 32% market share overall, while the combined T-Mobile and Sprint would be about 30%, according to various sources.

In short, the proposed merger would create a much larger number three carrier in the U.S. than either T-Mobile or Sprint are separately.

Why would regulators approve this deal?

How can regulators possibly allow this deal after rejecting AT&T's purchase of T-Mobile in 2011?

The answer, primarily, is that the combined size of Sprint and T-Mobile would still make it the third-largest U.S. wireless carrier. An approval of the 2011 AT&T-T-Mobile deal would have reduced the number of top players, while also making AT&T a much bigger number one player.

Even so, that might not matter, depending on whom you ask.

The DOJ has filed opinions several times with the FCC in recent months indicating that it is "very adamant it would like at least four nationwide carriers in the market," said Roger Entner, an analyst at Recon Analytics, in an interview on Thursday. "So I think it's quite likely the DOJ will oppose it or at least put severe restrictions on it."

Mergers in general are also coming under consistent scrutiny by members of Congress, Entner said.

After rejecting the 2011 deal, DOJ officials said that T-Mobile's resurgence of late -- at least in terms of increased subscribers but not revenues -- is a "great validation of their blocking the AT&T and T-Mobile deal," Entner said.

Jack Gold, an analyst at J. Gold Associates sees it differently. "Regulators might have some reservations about losing out on a fourth major competitor in the market, but both T-Mobile and Sprint are very far behind the big guys in subscribers, so for them to be a competitive threat at all, the combination -- which would get them closer to the big two -- would likely be good for the market," Gold said.

Would the deal be good for consumers?

Would a large number three carrier made up of Sprint and T-Mobile offer customers better prices, more services or significantly greater advantages than if they remain separate?

Gold said yes. "With the combined spectrum of T-Mobile and Sprint, you'd see some interesting new services offered, and they'd likely be price-leading and competitive," he said. "Innovation would lead to better services for everyone."

Legere at T-Mobile has led a charge toward no contracts and other "un-carrier" moves that have forced Verizon and AT&T to respond. A more recent move by T-Mobile to reimburse new customers up to $600 to pay off their early termination fee (ETF) with another carrier gave T-Mobile an increase iof 2 million subscribers in the first quarter of 2014, even though it has cost the company in revenues.

Gold said if T-Mobile and Sprint combine, they would need to build more cell towers to improve their nationwide coverage to carry data and voice over their combined spectrum holdings. "T-Mobile has inferior coverage, making it sometimes hard to even get a connection, which is why they support Wi-Fi calling," said Gold, a T-Mobile customer.

In terms of new services that both consumers and business customers would want from a combined T-Mobile-Sprint, Gold suggested some of the same premium offers that AT&T and Verizon have announced, including services for machine-to-machine wireless communications, health, security, home and business automation, cars and specialty entertainment.

"They have to go upstream and provide premium services that people or businesses will pay good money for," he said. "That's their challenge."

Entner said a combined entity would create economies of scale to naturally result in better networks at lower costs.

"If you look at the track record of this industry, it's a fallacy that the big companies aren't as innovative as the small ones," Entner said. "There are economic pressures, and the people and companies who want to lead the market should be allowed to lead the market."

What about business customers?

Given their separate histories, will merging Sprint with T-Mobile make a difference for business customers?

Both AT&T and Verizon have more of the lucrative business accounts than either Sprint or T-Mobile, which could provide a growth opportunity for a combined entity.

However, Gartner analyst Bill Menezes said the proposed merger would have far more consumer benefits than it would for enterprises. Both companies target price-conscious, value customers for whom their current network insufficiencies aren't as important as they would be for corporate customers, who need consistent network robustness, coverage and reliability, he said.

"Combining Sprint and T-Mobile network and back office operations will be a complex, disruptive and expensive task," Menezes said. "There's no apparent benefit to corporate customers, including the many Sprint corporate customers who have weathered service disruptions during Sprint's recent Network Vision upgrades."

Instead, Menezes said a merger would mean that Sprint and T-Mobile "would be ceding the midsized and large enterprise market to AT&T and Verizon."

What about T-Mobile's 'un-carrier' tactics?

T-Mobile's brash "un-carrier" moves over the past year were mainly to win subscribers quickly to make the company attractive for a possible sale, so that record doesn't necessarily indicate how the company would perform post-merger.

In a recent interview with Business Insider, Legere said that T-Mobile was "dead" when he arrived and that he needed to be flamboyant and attack his competitors to get ahead, implying he was not getting the company ready for a sale.

Entner disagreed, and said that T-Mobile is "clearly setting itself up for sale, partly by driving customer gains through buying customers from other carriers and by buying their [early termination fees] for up to $600. That's not a behavior for the long run. They are burning through cash and that's not sustainable for the long run of T-Mobile and the industry overall."

Entner said the outcome of T-Mobile's actions could be disastrous, much like what happened in the 1990s during what was called the "long-distance wars," when carriers offered $50 to $200 to a consumer to switch carriers. "The consumer in the short run might enjoy it, but in the long run, it ruins the entire industry," he said.

Entner also said that Deutsche Telekom, which owns 66% of T-Mobile, "clearly wants to exit its ownership" stake in the U.S. company even though it would reportedly hold on to 15% to 20% of the combined entity, initially. He speculated that Softbank would buy out whatever remains of Deutsche Telecom in coming years as Softbank finds more cash to do so.

Would Legere become CEO of a combined Sprint-T-Mobile?

So what is Legere up to and would he become CEO of a combined Sprint-T-Mobile? Bloomberg News recently reported that a person familiar with the merger discussions said that Legere is the leading candidate to become the CEO of the combined company, while Hesse at Sprint said he wouldn't be bothered if he didn't get the job.

If that's so, and Legere gets the nod should the deal be approved, it's likely Legere would continue to push his outlandish behavior at press conferences, and probably continue the aggressive pricing and service deals.

"John Legere is a very, very smart man, and he says things in public for shock value and for differentiation from his competitors," Entner said. "Whatever Legere does is fully thought through and very calculated."

Some analysts joked that if Legere is made CEO of a combined Sprint-T-Mobile, the FCC would need to reduce the number of profane words that can't be spoken during public broadcasts.

Indeed, it's hard to imagine two executives more different from Legere than Sprint's Hesse and Softbank's Son.

Son would likely be Legere's boss under a merger.

"That would be fun, wouldn't it?" Menezes said. "Legere and Son could be like Billy Martin and George Steinbrenner of baseball fame, with potential for lots of wins and lots of drama."

This article, Sprint-T-Mobile merger questions: Will regulators approve it? Legere as CEO --for real?, was originally published at Computerworld.com.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

See more by Matt Hamblen on Computerworld.com.

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