Jul 12, 2014 02:24 AM EDT
A merger between wireless carriers Sprint and T-Mobile seems to be picking up steam, as Sprint parent company SoftBank Corp. has reportedly reached a skeletal agreement with T-Mobile parent Deutsche Telekom AG for the acquisition.
According to Nikkei, the companies still have to hammer out the details, but things are looking up as far as the business side of the $40 billion deal goes. SoftBank intends to purchase 50 percent of T-Mobile shares from Deutsche Telekom, which owns 67 percent of the company.
There are still plenty of hurdles to overcome before the merger goes through. The Federal Communications Commission (FCC) and Department of Justice's antitrust department must approve it, and both agencies are critical of consolidation. The FCC, for one, argues that reducing the national carrier market from four to three is worse for customers.
Deutsche Telekom is worried that the deal might not survive the screening process, during which capital investment in T-Mobile will take a hit. The company is asking to be compensated $2 billion if the companies agree on a deal but regulatory roadblocks get in the way.
SoftBank chief executive and Sprint Chairman Masayoshi Son insists that combining forces is the only way Sprint and T-Mobile can realistically compete with Verizon and AT&T. Verizon boasts 122 million subscribers, followed by AT&T, with 116 million. Sprint comes in at No. 3, with 55 million, and T-Mobile is fourth, with 50 million. Quick math shows that even after consolidating, Sprint and T-Mobile would have fewer subscribers than AT&T, highlighting the gap in scale.
"I brought the network war and price war [to Japan]. I'd like to bring that to the States," Son said to industry officials in March. "I would like to provide an alternative to the oligopolistic situation that two-thirds of American households can only get access to one or two providers. I'd like to be a third alternative with 10 times the speed and lower price."
Sprint CEO Dan Hesse agrees, pointing to the fact that it's hard just to play catch-up when you're so far behind.
"If you have more customers, you can afford to build a larger network," Hesse told CNET in an interview. "Only then do you have the revenue to justify building in smaller suburbs and rural areas.
"If you live in an urban core, you will have access to AT&T and Verizon, and you'll also likely have access to T-Mobile and Sprint. But when you go to less populated areas, Sprint and T-Mobile might not be there."
T-Mobile is expected to absorb Sprint into its brand, with aggressive CEO John Legere heading up the new company.
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