After six years of false starts, rumors, and rejections, Sprint and T-Mobile have seemingly received government approval to merge. On Wednesday, CNBC reported that the U.S. Department of Justice (DOJ) has finally granted permission for the two telecommunications companies to become one.
The agency gave the corporations the go-ahead after they fulfilled its demand to create a new nationwide wireless carrier. Earlier this week, Dish Network reportedly agreed to purchase Sprint’s prepaid service, Boost Mobile, for $1.5 billion. The satellite TV provider will also buy $3.6 billion in radiofrequency spectrum from the telecom.
According to CNET, the DOJ has already accepted Sprint and T-Mobile’s $26.5 billion merger proposal and is in the process of convincing state regulators to approve the deal.
How the Merger Benefits Sprint and T-Mobile
Though they are ostensibly rivals, Sprint and T-Mobile have been looking to merge since 2013. The two telecoms sought to join forces because individually, they lack the resources to compete with AT&T and Verizon effectively.
Indeed, as of late 2018, Verizon had 153 million U.S. subscribers while AT&T served 150 million Americans. Conversely, Sprint and T-Mobile provided services for a cumulative customer base of 130 million consumers.
By purchasing Sprint for $26.5 billion, T-Mobile can position itself as a top carrier. For the first time, the Deutsche Telekom subsidiary will have the infrastructure, bandwidth, and subscriber base to establish a much larger and more lucrative presence within the U.S. marketplace.
As a combined entity, Sprint and T-Mobile have the potential to double or even triple profits. To illustrate the point, AT&T generated an income of $24 billion during this year’s first quarter, while Verizon made $19.1 billion. Comparatively, Sprint took in $5.04 billion, and T-Mobile earned $6.51 billion in the same frame.
With so much money on the table, meeting the government’s mandates that the companies sell off some assets and agree to establish 5G service in rural areas is a bargain.
Why Dish is Spending $5.1 Billion to Enter the Mobility Sector
The DOJ instructed Sprint and T-Mobile to sell assets to a corporation that would commit to becoming a real nationwide mobile voice, text, and data service provider.
On the surface, Dish’s intention to enter the mobility sector seems strange. After all, the corporation’s core business is selling satellite TV subscriptions. While the company could probably use the new spectrum, it had cheaper and less complicated options for acquiring more bandwidth.
In buying Sprint’s divested assets, Dish must become the nation’s new fourth-largest wireless carrier. The DOJ’s terms direct Dish to sell Boost Mobile’s service under its name for seven years. During that time, the firm is expected to establish its own telecom infrastructure. Furthermore, if corporate leadership decides the mobility business isn’t worth the hassle, it can’t sell off its wireless assets for three years.
Dish is making a costly gamble, but the company needs to make a significant change to stay alive. As noted by The Verge, the firm lost more than a quarter-million subscribers in the first quarter. Even worse, it lost over 330,000 subscribers in Q4 2018. Like many traditional broadcast corporations, the ongoing streaming wars are disrupting the company’s business model.
As a service provider rather than a content generator, Dish can’t compete with Netflix, Disney Plus, and HBO Max. However, thanks to the Sprint-T-Mobile merger’s terms, the company has the opportunity to transition into a new industry.
Though $5.1 billion is a massive investment, it’ll be worthwhile if the deal allows Dish to continue operations into the next decade.