By Steven Alvarez,
Money and Investing Writer
Throughout the month of October, Sprint (NYSE: S) and T-Mobile US Inc. (NYSE: TMUS) were engaged in talks of a merger; however, these talks have since dissolved. Although T-Mobile and Sprint are 3rd and 4th respectively in the wireless provider industry they are still considerably smaller than Verizon which has 147 million subscribers and AT&T which has 136 million subscribers.
The potential merge would have created a 3rd wireless provider giant to severely lessen the competition within the industry. It would have been favorable for investors, but a nightmare for consumers in the long run.
For the companies, consolidation would have made a lot of sense financially as the T-Mobile-Sprint company could have saved about $4 billion annually from cutting costs. On the positive side for consumers, the potential merge would have brought new special features that the other company provides.
T-Mobile features such as free Netflix and MLB.tv subscriptions would have been available to Sprint subscribers and the Sprint promotion that offers free Tidal streaming would have been available to T-Mobile subscribers.
These are enticing possibilities for T-Mobile and Sprint subscribers, however, the downside would have affected the entire industry.
With three instead of four major wireless providers, the competition would have decreased significantly resulting in higher prices, less appealing data plans, and less reason for companies to attract subscribers.
As of now, Sprint is the low cost alternative for consumers as it has become desperate for subscribers. Sprint offers attractive options for potential customers such as unlimited data plans for $50 a month whereas as similar plans would cost up to $75 per month at the other leading providers. Along with higher prices, less competition would have possibly brought an end to unlimited data plans. The unlimited data plans were a way to attract customers for sprint and the merge would have allowed them to reach 100 million customers and putting less emphasis on customer acquisition.
The likely possibility of Sprint ending unlimited data plans would cause a domino effect that would also likely end the unlimited data plans of Verizon and AT&T.
Another obstacle that would have had an impact are the different network coverage technologies that T-Mobile and Sprint use. The coverage map would have expanded, but not without a lot of work. Sprint uses CDMA technology (like Verizon) and T-Mobile uses GSM (like AT&T).
The major difference in these technologies is the use of a SIM card. Sprint phones tend to not have a SIM card, which would have forced Sprint customers incompatible with the network to upgrade phones just to stay on the network.
Switching to one form of coverage technology would have been a long and unfavorable process for the company as well as customers.
Despite the difficulties that would come along with a merger, this is not the first time that the two companies have engaged in talks of a merger. In 2014 the companies almost reached a deal but it was not approved by the Obama administration.
The upside was not there for all parties, which the CEO of T-Mobile John Legere expressed once again in his recent statement, “we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile’s shareholders.”
Even though these two companies walk away as two separate companies, that does not mean that they will not talk again at some point in the future about coming together.
A version of this article appeared in the Tuesday, November 7th print edition.
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