The merger of T-Mobile and Sprint Corporation, under discussion since 2013 and formerly announced in 2018, finally closed in April 2020, with Sprint being incorporated within T-Mobile as one company. This merger leaves only three large competitors in the already highly consolidated Wireless Telecommunications Carriers industry in the United States, which resulted in legal challenges from 14 states seeking to block the merger on anti-trust grounds.
In order to address these concerns and gain approval from the US Department of Justice (DOJ), the two carriers agreed to sell Sprint’s 800 MHz spectrum holdings and Sprint’s prepaid brands to Dish Network within the next three years, allowing the company to branch out of the Satellite TV Providers industry to become the fourth major competitor in the Wireless Telecommunications Carriers industry. In particular, Dish is most immediately poised to establish itself in the prepaid market segment in the next five years with its purchase of the popular Boost Mobile and Virgin Mobile brands from Sprint.
What this means for 5G
After receiving approval regarding antitrust concerns from the DOJ, the merger was approved by the Federal Communications Commission (FCC) with the justification that the larger company created by the merger would be able to more effectively roll-out 5G coverage and help achieve the goal of creating a national 5G network. In this view, the increased consolidation would be justified by the benefit of a faster rollout of 5G service.
As a condition of the FCC’s approval of the merger, T-Mobile committed to making its 5G coverage available to 97.0% of the US population within three years and to 99.0% within six years. In addition, T-Mobile pledged to provide service with download speeds of at least 50 Mbps available to 75.0% of the population within three years and to 99.0% of the population within six years. The additional expense of rolling out 5G coverage in an accelerated time frame may push down profitability for both T-Mobile and the industry as a whole in the short-term. However, the high speed of 5G is likely to push a larger number of consumers to use mobile devices as their primary means of accessing the internet, which will likely provide a boost to revenue and long-term profitability.
Expanding coverage in rural areas
Furthermore, T-Mobile also made commitments to build out their new 5G network in rural communities, reflecting the difficulties in making high-speed internet available in rural areas. T-Mobile pledged to cover 85.0% of the US rural population with 5G service within 3 years.
If T-Mobile does not meet these aforementioned conditions and additional requirements, they agreed to pay up to $250.0 million to the US government depending on how significantly the company falls short of these goals. Rural areas are not as profitable to roll out service to due to their low population density, which may further impact average profitability in the Wireless Telecommunications industry. However, increasing the amount of rural consumers will also fuel revenue gains for both T-Mobile and the industry as a whole.
A push for 5G hardware
Since the closure of the merger, T-Mobile has continued to roll-out 5G coverage, aided by the additional spectrum holdings and infrastructure acquired from Sprint. In July 2020, T-Mobile officially shut down the entire Sprint 5G network to legacy Sprint customers, in order to incorporate that spectrum for use into its own network. They also announced that any legacy Sprint customer with a Samsung Galaxy S20 5G would be able to access the new T-Mobile 5G network, but all other legacy Sprint customers would have to buy new devices to access T-Mobile’s 5G service. This reflects a larger industry strategy to push consumers to buy new devices with 5G capability, which may provide a boost to the Retail Market for Smartphones in the United States in otherwise difficult economic conditions.
