If Sprint & T-Mobile merge, will prices be slashed?
According to some analysts, Sprint will be able to save up to $6.6 billion on a variety of costs if they are able to merge with T-Mobile. In order to achieve those savings, Sprint will also need to slash prices with deep discounts and most likely a decline in immediate revenue.
Although Sprint Chairman Masayoshi Son has promised a price war on several occasions, analysts are under the belief that he is hesitant to cut fees due to the decline in revenue that would occur.
“I think he’s realized he’s between a rock and a hard place. Sprint’s prices are much too high, but if Sprint cuts prices, its stock will fall,” said Craig Moffett, lead analyst at MoffettNathanson. “They don’t come close to justifying their stock price.” – Reuters
According to Reuters, Sprint has agreed to pay about $40 per share to buy T-Mobile. A Sprint/T-Mobile merger would have more than 100 million subscribers which is just behind both Verizon and AT&T.
A Sprint/T-Mobile company will own 29 percent of the wireless market share in this country and will therefore create a viable third player. But what incentive would this third-place wireless company have to be truly disruptive and cut prices?
Even under new ownership, Sprint has not done anything to show that a merger with T-Mobile would help anyone other than executives who help close the deal. Both networks are generally considered the third and fourth best in the country (with T-Mobile’s improving, no doubt).
T-Mobile itself has driven Verizon and AT&T to offer cheaper plans to some of their customers. Anyone who has seen AT&T and Verizon’s prices sky-rocket the last decade should understand how unbelievable that is in today’s world.
Lawyer and telecom consumer advocate Susan Crawford also issued a warning to regulators about letting the two companies merge.
Whatever “synergies” — such as eliminating duplication — Sprint and T-Mobile might capture by combining wouldn’t necessarily be passed on to consumers in the form of lower prices. And those savings are likely outweighed by the harm to competition such a merger would cause. – Bloomberg