Clouds are clearly gathering over the proposed merger between Sprint and T-Mobile. The latest: A Wall Street Journal article indicating the Department of Justice may not accept the deal as it currently stands due to concerns it would reduce competition in the market.
That position doesn't necessarily come as a surprise. For example, the FCC earlier this month moved against the proposed merger of Securus Technologies and Inmate Calling Solutions -- two companies that offer telephone services to prisoners -- because their proposed merger would reduce competition in the market.
Nonetheless, top executives from both Sprint and T-Mobile pushed back against the WSJ story, and Fox Business reported that much of it is inaccurate.
Moreover, T-Mobile executives seem to have gone into overdrive in their efforts to push the deal through. Those efforts range from CEO John Legere's new post outlining the transaction's benefits for rural America to the Tweet storm from Kathleen O'Brien Ham, T-Mobile's regulatory chief, blasting the "outrageous" and "incorrect" arguments that Dish Network has made against the merger. "Turns out the only way for Dish to take our work down is to MAKE THINGS UP," Ham tweeted.
Regardless, opponents of the deal couldn't help but gleefully celebrate the WSJ's negative take on the merger's chances. "We are encouraged by news of the potential demise of this bad deal," Free Press Senior Policy Counsel Carmen Scurato said in a statement. "T-Mobile and Sprint executives can't make the case for this deal's public benefits because there aren't any."
Thus, it appears to be time to move beyond assessing the odds of the deal and instead looking at what the companies might do if regulators move against their proposed transaction.
In the case of Sprint, the company has already signaled what it might do if the FCC or DoJ were to block its proposed merger with T-Mobile.
"Absent completing its transaction with T-Mobile, Sprint will have limited options, and is likely to be forced down either a repositioning path and/or a restructuring path," Sprint wrote in a lengthy FCC filing outlining what it said is its precarious financial and strategic position as a standalone company. "Repositioning would require additional cost cutting, which at a minimum would mean additional reductions to an already thin workforce, and even further scaling back of Sprint's operations and ability to be a meaningful competitive constraint. Restructuring would result in a Company that looks very different from Sprint today and carries with it the risk that Sprint would be forced into the sale of spectrum used to collateralize a portion of its current $40 billion of debt -- spectrum that [it] would need to operate its mobile network."
Added Sprint: "Either of these paths will only serve to strengthen Verizon and AT&T and further entrench their dominant positions."
But T-Mobile's path isn't as clear, mainly because the company is not only financially stable but has generated significant momentum in the wireless market during the past several years under the leadership of Legere and his team. But what are T-Mobile's options in a 5G world where it wouldn't gain access to Sprint's 2.5GHz spectrum?
1. T-Mobile and Sprint could restructure their merger proposal.
The WSJ reported that the companies' deal is "unlikely to be approved as currently structured," which opens up for discussion whether the companies could restructure the deal in a way that would be approved. Indeed, the WSJ noted that "T-Mobile and Sprint could offer concessions, such as assets sales, to try to address the government's concerns."
However, the analysts at Wall Street firm New Street Research don't believe T-Mobile has much leeway for those kinds of concessions. The firm said that such compromises "basically involve variations of allowing the companies to merge the network assets into a joint venture or wholesale entity, with that enterprise providing access to the remaining T -Mobile and Sprint assets (and potentially others). The details will be complicated and matter both to the future of the companies and the entire sector," the analysts wrote in a recent note to investors. "We simply note for now that there has been basically no discussion of such a structure in the public record so far, suggesting that neither the DoJ staff nor the companies sees it as a viable option."
2. T-Mobile could simply proceed with its existing 5G buildout plans.
T-Mobile laid out its initial 5G vision at the beginning of last year, prior to its merger announcement with Sprint in April of 2018, with plans to deploy 5G services across its 600MHz spectrum as well as in other bands.
"They'll be fine," argued Recon Analytics analyst Roger Entner. "T-Mobile was in at least as a difficult position as Sprint is today when the AT&T merger [with T-Mobile in 2011] fell apart. More difficult. And T-Mobile turned it around ... It shows you what some money and good leadership can do."
Entner argued that T-Mobile's proposal to merge with Sprint is actually the company's Plan B, and Plan A is for T-Mobile to build out 5G using its existing 600MHz spectrum holdings and to fortify those efforts with the purchase of millimeter-wave spectrum licenses in the FCC's ongoing spectrum auctions.
Entner said Sprint's 2.5GHz spectrum is a "nice to have" for T-Mobile but not critically necessary to its core business.
3. T-Mobile could go after Dish's spectrum holdings.
As noted by Seeking Alpha, Wall Street investment firm Goldman Sachs said Dish Network or Intelsat, both of which have access to large chunks of spectrum, could benefit from the collapse of the merger agreement between Sprint and T-Mobile. That's because T-Mobile could come knocking for more spectrum.
"T-Mobile needs spectrum for 5G, it can't rely on millimeter-wave alone. It needs more spectrum and mid-band spectrum. Its quickest move, and least to run into regulatory fight, would be to refarm 3G spectrum for 5G. But, that still doesn't give it much. Acquiring Dish's spectrum is another option, but might take longer with DoJ and FCC," wrote Ovum analyst Daryl Schoolar.
After all, Dish has been a major, vocal opponent of the Sprint/T-Mobile merger, possibly because it sees T-Mobile as a customer for its spectrum.
Others disagreed. "T-Mobile WILL NOT purchase Dish's spectrum," wrote Earl Lum of EJL Wireless Research. "They already have nationwide 600MHz. Having more 600MHz will not help T-Mobile enable eMBB [Enhanced Mobile Broadband] 5G. The Band 70 AWS-4 spectrum (5+5MHz) Dish has is worthless."
4. T-Mobile could ink a deal with a cable company.
Sprint has already inked an innovative deal with cable company Altice USA in order to speed the rollout of small cells, and T-Mobile could embark on a similar transaction. T-Mobile already has embarked on a new TV offering.
"That's a possibility," Mark Lowenstein, managing director of Mobile Ecosystem, said regarding a T-Mobile deal with a cable company. "But the cable companies have not shown massive appetite to get into the wireless industry full bore."
And EJL's Lum said a T-Mobile/cable deal doesn't have much chance of happening either.
Concluded Lowenstein of Mobile Ecosystem: "I think it's going to be real challenging" for T-Mobile.