Sprint and T-Mobile Reportedly Renew Merger Talks

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When Sprint (NYSE: S) and T-Mobile (NASDAQ: TMUS) first began talking about merging their operations, the iPhone 5s had just been released. In fact, back in late 2013, when discussions between the two wireless carries started getting serious, carriers offered subsidies when a customer bought a top-tier phone, data overages were common, and multiyear contracts were the norm.

All of these things have changed, largely due to T-Mobile working to change them. A second set of merger talks collapsed in late 2017, but the two companies are now said to be back at the bargaining table The Wall Street Journal reported Tuesday [subscription required].

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A brief history of Sprint and T-Mobile

T-Mobile CEO John Legere is a driving force at the company. He took the top job after a failed effort to acquire T-Mobile by AT&T. The outspoken CEO set about disrupting the wireless business. That included removing customer pain points including the items mentioned above.

Legere's efforts got the attention of Sprint and its majority owner, Softbank (NASDAQOTH: SFTBF), and the first merger talks began. That potential deal remained at least informally a possibility until February 2014, when officials from the Department of Justice (DOJ) and then-Federal Communications Commissioner (FCC) Chairman Tom Wheeler made it clear that any deal to take the United States from four major wireless carriers to three would likely not be approved.

Talks began again in late 2017 with negotiating power having shifted to T-Mobile and its majority owner, Deutsche Telekom,as the Legere-led company had passed Sprint to become the No. 3 wireless carrier. That deal failed also, largely because Softbank was not willing to cede control of the combined entity and T-Mobile had no reason to.

Is now a better time?

The key reason for the merger has always been to gain the scale needed to effectively compete with industry leaders AT&T and Verizon. Even with T-Mobile adding at least 5 million customers for each of the past five years, the carrier still closed 2017 with only an estimated 17.11% U.S. market share. Sprint has even less at an estimated 12.64%, while Verizon leads the way at 35.46% and AT&T follows at 33.37%.

So a combined T-Mobile/Sprint would be much closer to equaling its rivals in size. In theory, that would allow for lower costs per customer and the ability to eventually create one network, which would lower capital costs, though there are significant technical hurdles to do doing that.

The combined company could also theoretically save money by operating fewer retail stores and by combining customer service efforts. It would also be in a better negotiating position with vendors, phone makers, and anyone else it deals with.

The odds

I assume that both sides are going into any talks knowing what the other one wants. That likely makes it easier to find a starting point and suggests that Softbank may be willing to give in on the control issue. The Wall Street Journal reports that its anonymous sources say the latest talks are in a preliminary stage.

Even if the two companies agree to a deal, however, it remains possible that the DOJ and the FCC will remain in opposition. That's a decided wild card given the Trump administration's has been trying to block AT&T's acquisition of Time Warner.

Sitting down and talking is just that, but in many ways, this is like a first date between two people who have known each other for decades. It's possible that a lot of the preliminary get-to-know-you routine will be bypassed and these two longtime almost partners will finally try to get together.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool recommends Time Warner and T-Mobile US. The Motley Fool has a disclosure policy.