T-Mobile US to take over Sprint to create $146bn company

30 April 2018 | Alan Burkitt-Gray

Deutsche Telekom’s T-Mobile US is to take over SoftBank’s Sprint in a non-cash deal that will create a powerful US mobile operator to compete with Verizon and AT&T.

In the deal, announced on Sunday, the new company – temporarily called New T-Mobile US – will be smaller than the other two but will be within meaningful competing distance, especially as they all start to roll out 5G.

It will take about a year for Deutsche Telekom (DT) and Sprint/SoftBank to argue their case before financial and telecoms regulators – and against lobbying by the big two. SoftBank said: “The transaction is expected to close no later than the first half of 2019.”

The deal will end up with Sprint owned by T-Mobile US. DT will own 41.7% of the new T-Mobile US and SoftBank will own 27.4% – but the Japanese group will grant DT a proxy for its shares, giving DT an effective 69.1% vote. Public shareholders will own the other 30.9% of the combined company.


DT revenue chart
Source: DT
Globally, the deal will advance DT’s position in sales to just behind Verizon, with €102 billion of pro forma sales, combining Sprint and DT’s 2017 figures, behind Verizon’s €103 billion and AT&T’s €131 billion. Telefónica trails at number four with €52 billion, ahead of Vodafone at €46 billion and Orange at €41 billion.

Both sides – John Legere, CEO of T-Mobile US, Marcelo Claure, CEO of Sprint – emphasised on a specially ceated website that the merger would help the roll-out of 5G. The combined company will continue T-Mobile US’s Un-Carrier theme, introduced by Legere – and believed to be significant in strengthening Deutsche Telekom’s negotiating hand with SoftBank because of its success in attracting customers.


Mosaik T-Mobile Sprint map
Source: Mosaik
An analysis by mobile industry monitoring company Mosaik showed that the two companies have huge spectrum resources between them. T-Mobile US bought most spectrum in a US auction a year ago. 

The combined company will have 70 million mobile customers, putting it 10% behind AT&T’s 78 million. Verizon has 111 million. In US wireless revenue terms, the new T-Mobile US will be ahead of AT&T, by $74 billion to $71 billion, with Verizon ahead at $88 billion.

Neither side, however, has talked about the potential impact on the global carrier and wholesale market. Both Deutsche Telekom and Sprint have Tier One networks. CAIDA, the Center for Applied Internet Data Analysis, ranks Deutsche Telekom at number 15 in the world out of 40 and Sprint at number 28.


Capacity has approached senior executives at Deutsche Telekom and Sprint, but no one has been willing to speak. Mardia van der Walt (Niehaus), SVP of Deutsche Telekom’s International Carrier Sales & Solutions (ICSS), declined the opportunity to talk to Capacity, though she passed us on to colleagues – who themselves did not respond.

Last week we reported that she is to step down from her role in the division when her contract expires at the end of August 2018. She will be SVP of transformation at the International Wholesale Business Unit (IBU) from tomorrow, 1 May. It is not yet clear what Van der Walt (Niehaus) will do from 1 September.

Mardia van der Walt Niehaus
Source: LinkedIn
However, this morning she posted on LinkedIn about the merger, commenting on a picture of Claure, Legere and DT CEO Tim Höttges: “Very exciting news for our company today!”

As well as its Tier One internet role, DT has a substantial international wholesale business via its ICSS unit. Sprint, which by next year will be part of T-Mobile US, does too. If Sprint’s wholesale operation becomes effectively part of DT, that will contribute further to consolidation in the industry – after a few years that have seen CenturyLink, GTT and Zayo acquire rivals.

SoftBank noted that it has an international voice and data roaming partnership agreement with Sprint. This, presumably, will transfer to T-Mobile US. Whether that is administered by DT’s ICSS division remains to be seen. SoftBank also has an international voice and data roaming partnership agreement with T-Mobile, the Japanese group noted.

Some of the impact may become clearer at next week’s International Telecoms Week (ITW) in Chicago, Capacity Media’s meeting of around 7,000 senior industry executives.

“What a great day for our company. This is a huge step,” said Höttges last night. “The merger is beneficial for customers, shareholders and the whole economy in the US. It will also strengthen Deutsche Telekom’s presence in the leading markets in the Western World.”

He said: “We share one vision: Better networks in the US. Un-Carrier-competition eye to eye with AT&T and Verizon. Faster and broader build out of 5G. Value for customers.”

Höttges will chair the new company’s board, which will have nine directors from DT, including Legere, and four from SoftBank, including Masayoshi Son, chairman and CEO of SoftBank, and Claure of Sprint. It will trade on the Nasdaq under the TMUS symbol, already used by the existing T-Mobile US.

DT said there would be about $43 billion in cost synergies in creating the new company, which it said was “supercharging the Un-Carrier”.

Financially the deal will be good for DT. No cash is needed and the new T-Mobile US will have standalone funding, and will pay back $8 billion worth of debt to the German parent.

This means the merger will not affect any plans DT may have to expand in Europe or elsewhere. DT is the biggest shareholder in BT, though it cannot buy or sell shares until early 2019, three years after DT and Orange sold their UK joint venture, EE, to the UK incumbent. Höttges said only two months ago – answering Capacity’s questions at Mobile World Congress – that BT is “a very attractive company”.

It’s the third known time that Sprint and T-Mobile have held talks about a merger, but the previous two attempts have ended in failure.

In 2014 opposition from AT&T and Verizon led the two companies to call off talks before a plan was announced – and Sprint’s then CEO, Dan Hesse, left the company to be replaced by Claure. Last year talks resumed but SoftBank ended them after failing to agree over ownership of the combined company.

It’s clear that, since then, T-Mobile US has outperformed Sprint, which is effectively handing over control to its more successful rival.

Christos Genakos, senior lecturer in economics at Cambridge University’s Judge Business School, said this morning that the merger might result in “short-term loss to consumers” because prices might rise, but “potential long-term gains through investments necessary for the next generation of mobile services”.

Genakos was co-author of a recent study that found that more concentrated mobile markets resulted in higher prices paid by consumers but also more investment per mobile operator.

“Consolidation leads to higher prices as well as higher per-firm investment,” he said. “The question for competition authorities is to find the right balance and to make sure that healthy competition exists – not just today but also tomorrow.”




Topics: Deutsche Telekom, SoftBank, T-Mobile, Sprint, merger, Verizon, AT&T, 5G