T-Mobile US Inc's $26 billion deal to buy Sprint Inc banked on changes in wireless technology and media streaming to win US antitrust approval, but the bet now looks precarious.
Growing skepticism from the US Department of Justice's antitrust staff over the impact of the merger on competition in the market will test the resolve of the companies to complete the deal that would see the top US wireless carriers shrink to three from four.
While the Department of Justice has yet to reach a decision on whether to approve the deal, it is pushing Sprint and T-Mobile for evidence that the merger would be in the interest of US consumers, people familiar with the matter said this week.
The deal would be the third major attempt in less than a decade to consolidate the US wireless market, after AT&T Inc's $39 billion deal to buy T-Mobile in 2011 was blocked, and Sprint and T-Mobile abandoned a previous attempt to negotiate a merger in 2014 following regulatory opposition.
If completed, the deal would create a carrier with 127 million customers that will be a more formidable competitor to the No.1 and No.2 wireless players, Verizon Communications Inc and AT&T, respectively.
“It is time to acknowledge that the odds of the deal are less than a coin toss,” said Craig Moffett, a senior analyst at Moffett Nathanson, in a note.
Sprint shares are down more than 6 percent after the Wall Street Journal reported the merger is unlikely to be approved as currently structured, despite T-Mobile CEO John Legere tweeting that the premise of the story was “simply untrue”. Sprint and T-Mobile are arguing that the US wireless telecommunications industry has changed substantially since 2014, when they last attempted to merge.
The changes include the development of ultra-fast 5G networks, Sprint's struggles to operate on its own given its swelling debt load, and the marriage of telecommunications infrastructure with media production, as epitomized in AT&T's $85 billion acquisition of Time Warner Inc.
These changes, as well as the companies' belief that the current Department of Justice antitrust chief, Makan Delrahim, will take a more generous view of the deal than past leadership did, gave the two companies the confidence to take another shot at merging last year, they added.