T-Mobile/Sprint odds and ends: Breakup fee, Washington reaction, vendor implications and more

As the dust settles on Sunday’s news that Sprint and T-Mobile finally reached a merger agreement after years of attempts, additional details are emerging about the drivers behind the transaction, what the carriers are doing to get the deal approved and what the merger might mean for the market’s vendors.

Here are a few of the tidbits emerging from the transaction:

T-Mobile wanted to purchase Straight Path

According to a report in CNBC, T-Mobile participated in the early rounds of bidding in 2017 for Straight Path and its millimeter-wave spectrum licenses. Citing unnamed sources, the publication reported that, as the bids rose higher and higher, T-Mobile realized it would be unable to afford the spectrum and dropped out of the bidding.

And that, CNBC reported, was part of the reason that T-Mobile continued to pursue a transaction with Sprint: Company executives believed that the operator wouldn’t be able to compete in 5G against the likes of AT&T and Verizon without the leverage and spectrum holdings that Sprint controls.

The disclosure that T-Mobile bid on Straight Path’s assets is new; Verizon announced in May 2017 that it beat AT&T in a bidding war for Straight Path, paying $3.1 billion in order to obtain the company’s vast millimeter-wave spectrum holdings. Verizon now is moving forward with plans to deploy 5G services on those spectrum licenses as early as this year.

T-Mobile would owe Sprint $600 million if it walks away from the deal

As noted by Axios, Sprint and T-Mobile won’t have to pay a breakup fee if regulators from the FCC or Department of Justice manage to kill the proposed merger. However, according to documents the companies filed with the Securities and Exchange Commission, T-Mobile would owe Sprint $600 million if the company decides to walk away from the transaction, among other circumstances.

That’s noteworthy considering T-Mobile has credited part of its successes in recent years to the whopping $6 billion breakup fee (which included the transfer of some AWS spectrum) that it obtained from AT&T in 2012 when those companies’ proposed merger fell apart.

Wall Street’s reaction

As the analysts at New Street Research noted, investors appeared uneasy about the announcement of the merger between Sprint and T-Mobile, sending the carriers’ shares down slightly in trading yesterday. The analysts attributed the action to a number of factors:

“We think there are three things at play: first, the market seems to be ascribing very low odds to approval; second, the pro forma projections that management published suggest a bleak view of standalone prospects, and; third, there is always volatility following a deal announcement, particularly a deal with a tough regulatory process like this one, because the stocks will be in limbo for 12-18 months,” the analysts wrote. “The third impact is what it is. The first two set up a paradox that we think the market is missing: if standalone prospects are so bleak, it increases the prospect of approval.”

Claure, Legere head to Washington

As expected, top management from Sprint and T-Mobile, including T-Mobile CEO John Legere and Sprint CEO Marcelo Claure, are headed to Washington, D.C., this week to work to generate support for their proposed merger. That’s not a surprise considering the companies will need to obtain approval from the FCC and the DOJ in order to consummate their proposed merger.

And, as T-Mobile’s Legere said during an interview yesterday with CNBC, the companies are arguing that a merger between Sprint and T-Mobile would increase U.S. jobs and improve America’s position in the global race to 5G—both of which align with President Trump’s stated goals.

“President Trump does have some impact on this deal because tax reform as significantly increased the value of this deal,” Legere said in an interview with CNBC. “Tax reform has also given us the engine that we’re gonna be able to use while we’re investing to hypercharge this. And I would say if you think about the agendas in Washington, leadership with China is rising taking the U.S. position in such a critical area. I think we’re goal aligned from a political agenda.”

Perhaps not surprisingly though, some Washington lawmakers are already calling for hearings on the proposed merger, as noted by BGR.

Nokia, Ericsson poised to cash in on merger

As noted by Mobile World Live, Nokia, Ericsson, Cisco and Samsung may be in line to score a significant portion of the $40 billion that a merged T-Mobile and Sprint has promised to spend on its network in the three years following the expected close of the transaction.

Strategy Analytics’ Sue Rudd largely echoed that argument, writing that “much of the equipment at those sites may be relocated to other sites or sites may be converted for a new ‘5G ready’ 4G small cell underlay,” she wrote, adding that “so, it may even have a positive impact on equipment sales.”

However, Anshel Sag, associate analyst at Moor Insights and Strategy, told MWC that, in the long term, a merger between Sprint and T-Mobile would likely lower overall network equipment spending in the United States.