T-Mobile and Sprint Inch Closer to Merger Approval

Wireless carriers T-Mobile and Sprint have been trying to usher their proposed megamerger through the regulatory approval process for over a year now. Critics of the $26 billion deal argue that more corporate consolidation in the wireless industry will only result in lost jobs, higher prices, and less incentive to innovate and compete. T-Mobile and Sprint say the deal will result in lower prices and better service.

There's been considerable uncertainty around whether the deal will go through, but the two companies have just inched closer to getting the transaction approved.

T-Mobile and Sprint are committing to a speedy 5G rollout and a prepaid divestiture

Federal Communications Commission Chairman Ajit Pai this morning released a statement supporting the proposed deal, following some concessions that T-Mobile and Sprint have agreed to make if they secure FCC approval. FCC Commissioner Brendan Carr likewise put out a statement expressing support for the merger. That's two out of the five FCC commissioners that are now on board.

Pai notes that T-Mobile and Sprint have committed to deploying a 5G network that would cover 97% of Americans within three years, including extending into rural areas that have historically had less coverage than urban markets. The companies plan to provide 90% of Americans with access to mobile broadband speeds of at least 100 Mbps.

"The construction of this network and the delivery of such high-speed wireless services to the vast majority of Americans would substantially benefit consumers and our country as a whole," Pai said in the statement. "Today's commitments to bring 5G to rural America are verifiable and enforceable," Carr added.

Additionally, Sprint has agreed to sell off Boost Mobile, its prepaid wireless subsidiary, since T-Mobile already has a strong position in the prepaid segment of the market. In fact, the Un-carrier is already the leader within that part of the market, underscoring why there are concerns around strengthening T-Mobile's prepaid position further.

"This sale is designed to address potential competitive issues that have been identified in the prepaid wireless segment," Pai said.

The transaction still needs to get antitrust approval

Even if the deal clears the FCC, it still needs to withstand antitrust regulatory scrutiny from the Department of Justice, which has reportedly been skeptical of the deal and its effects on competition, at least as the agreement was structured last month. For what it's worth, T-Mobile CEO John Legere had denied those reports.

Regulators tend to be more concerned with horizontal mergers, where two companies that compete directly combine, such as in this case. Vertical mergers, where a company integrates another part of the value chain, are less likely to harm competition. The Boost Mobile divesture will likely help the companies' case on the antitrust front.

The FCC will officially vote on the transaction on June 15.

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Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and VZ. The Motley Fool has a disclosure policy.