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Judge Will Block Sprint/T-Mobile Merger, Cowen Analysts Predict

After sitting through most of the ten-day antitrust "trial of the century" last month in New York City, the Wall Street analysts at research firm Cowen today came to a conclusion: US District Judge Victor Marrero will block T-Mobile's attempts to merge with Sprint.

"After watching the witnesses, evidence, and Judge Marrero's questions, we continue to believe the state AGs are likely to prevail. We assign a 60% chance of this happening," the analysts wrote in a note to investors today. They also wrote that they don't expect T-Mobile and Sprint to ink a settlement with their opponents.

Roughly a dozen state attorneys general (AGs) are suing to block the proposed merger of Sprint and T-Mobile on the grounds that it would reduce competition in the US wireless industry and thus raise costs for consumers in their respective states. The two companies, on the other hand, have pushed a number of arguments about why they should be allowed to merge, including that Sprint can't survive as a viable nationwide wireless provider, and that Dish Network can replace Sprint as the nation's fourth big wireless player. The case went to court last month, with both sides seeking to convince Judge Marrero of their respective arguments.

The Cowen analysts said the judge will likely issue a ruling in the case sometime in February.

"The government first must show the merger is presumptively anticompetitive. The states very likely did this by showing that the wireless market today is already 'highly concentrated' by market share and the merger would make it more so," the Cowen analysts wrote. They noted that the judge's questions during the case indicated that he didn't accept T-Mobile's argument that MVNOs should be considered additional competitors in the market.

MVNOs like Comcast (Xfinity Mobile) and America Movil (TracFone) sell mobile services in the US, but their offerings essentially piggyback on the networks of operators like Verizon and T-Mobile.

The analysts also wrote that, despite relatively compelling testimony from Dish Network's Charlie Ergen, they don't believe the judge was convinced that Dish can replace Sprint as the nation's fourth wireless network operator. The analysts noted that Dish will take fully four years to cover 70% of the US population with a wireless network, and that Dish will remain much smaller than Sprint is today for the foreseeable future -- items highlighted in the judge's questioning.

Dish is positioned to acquire 9 million Boost customers from Sprint if the merger between Sprint and T-Mobile is approved -- far fewer than the 50 million total customers that Sprint commands today.

Finally, the analysts acknowledged there is a political component in the case to consider: "Judge Marrero is a Democrat, and this merger battle is highly partisan," they wrote. "The case was brought by Democratic AGs (led by Marrero's fellow NY Democrat Letitia James) and is supported by most congressional and FCC Democrats who took a public position."

The analysts at Raymond James, another Wall Street research firm, also believe that the judge will probably block the deal. But the analysts at Lightshed partners have argued that the state AGs did not create a compelling argument to block the merger.

It's unclear what T-Mobile and Sprint will do if the judge does indeed move to block their proposed merger. Sprint executives have said the company might withdraw from the nationwide market and instead focus on selling mobile services in a handful of big cities. T-Mobile meanwhile could look for other sources of spectrum, including potentially from Dish Network.

— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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