Telecom Talk: Dish to Sprint

06/10/2019 5:00 am EST

Focus: TELECOM

Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

Allowing Sprint (S) and T-Mobile USA (TMUS) — this country’s third and fourth largest wireless companies — to merge is a major policy shift. That means there will be winners and losers, explains Roger Conrad, editor of Conrad's Utility Investor

Sprint far and away has the most to gain from DOJ approval, along with its 84.46 percent owner Softbank Group (SFTBY) of Japan. That’s mainly because the company appears otherwise headed for bankruptcy under the weight of $34.6 billion in debt. 

Ironically, folding in US wireless’ three and four players will also boost the current numbers for one and two — AT&T (T) and Verizon (VZ).

The elimination of a major competitor will further boost these companies’ already strong margins. In fact, the effect could be particularly pronounced: During its multi-year decline, Sprint basically competed solely by undercutting rivals on price.

Combined T-Mobile and Sprint won’t have to resort to such profit-undermining tactics. And the result should be less downward price pressures sector wide, as the new "Big Three" companies compete on quality of service in the run up to ubiquitous 5-G communications networks. 

For the rest of the sector, Sprint/T-Mobile is just the latest evidence that it’s time to get big or go home. A DOJ ruling that allows this deal to proceed would not only give a green light to other communications industry mergers.

It would almost certainly force companies to consider them. Staying single means being left even further behind in the sector arms race to build faster, higher capacity and further reaching networks. 

A buyout would be quite timely for DISH Network (DISH), which otherwise is at growing risk to losing the wireless spectrum licenses that are by far its most valuable asset. The key question is what anyone would pay for Charlie Ergen’s company, which lost 266,000 satellite television subscribers in the first quarter alone. 

In fact, ongoing sales declines at all but the largest communications players make eventual "take under" deals considerably more probable than high premium takeover offers. That’s why "get big or go home" applies just as much to investors in communications stocks as the companies themselves.  

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