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US authorities allow merger of T-Mobile and Sprint subject to conditions

  • The US Department of Justice has approved the merger of Telekom subsidiary T-Mobile with smaller rival Sprint.

  • However, the billions merger is subject to conditions: Both companies have promised in advance the sale of comprehensive business parts.

  • Several US states want to sue against the merger. They fear “less choice and higher prices”.

When Tim Höttges, 56, talks about America, then the head of Deutsche Telekom rarely gets by without superlatives. His subsidiary T-Mobile US calls Höttges “our growth star”. And that she now wants to merge with the competitor Sprint, the telecoms boss recently simply referred to as: “the big deal”. T-Mobile US already has a good 83 million mobile customers in America, and together they reach almost 130 million – more than Telekom has across Europe. Twice the merger had failed in the past. Now it seems as if all good things are three.

According to the US telecoms regulator, the Ministry of Justice has now spoken out in favor of the € 23 billion merger – but subject to conditions: T-Mobile and Sprint have to hand over their prepaid brand Boost and some of their radio frequencies to the satellite operator Dish. So the authority wants to protect the competition in the US mobile market. In the room is now a lawsuit of several US states. In the case of the merger, they fear less choice and higher prices for their customers. T-Mobile and Sprint, as the third largest mobile operator in the US, would be close to the two market leaders AT & T and Verizon.

One thing is certain: If Höttges’ plan succeeds, Telekom would soon have more customers in America than in Germany and other EU countries together. The former state-owned company would earn its money in future more than half in the US. The board emphasizes the opportunities: T-Mobile and Sprint want to cut costs by several billion. You could save double antenna space, merge distribution and administration. And they could share the cost of the new 5G mobile standard. “Our industry lives from the economies of scale,” says Höttges.

But for Telekom shareholders, the plan also entails risks. “T-Mobile US would have to take over the US competitor and its debts,” warned Thomas Deser of Union Investment at the company’s Annual General Meeting, “and the integration costs are very high.” The merger would initially cost well over twelve billion euros. This pushes the earnings per share down – and the Telekom wants to measure the dividend payment. “We would have two years to go through a dent,” the board said at the recent Capital Markets Day.

The corporations also want to expand 5G in rural areas of the United States

T-Mobile and Sprint had already offered concessions in advance for the US authorities to approve their merger. In addition to the sale of Boost, the companies want to expand the new 5G technology in rural areas of the United States. “We will bring 5G to every corner of this country,” announced T-Mobile boss John Legere. This new standard can transmit even large amounts of data in near real-time and is the basis for future technologies such as autonomous driving.

T-Mobile and Sprint also want to do without technology from Huawei in the 5G expansion. The US fears that China might force outfitter to intercept data from the West or paralyze mobile networks. Huawei rejects the allegations.

In recent years, T-Mobile and Sprint have twice tried to merge. This failed in 2014 on antitrust objections; The Telekom subsidiary would have been a junior partner back then. In autumn 2017, then, Telekom and Sprint’s majority shareholder, Softbank, Japan, did not agree on who would be in charge of the joint venture. This issue has now resolved in favor of the Bonn Group: Softbank is to hold 27 percent of the shares of the new joint venture. Deutsche Telekom received 42 percent – but secured far-reaching voting rights, so that it can continue to show T-Mobile fully in the consolidated balance sheet. The remaining shares belong to other shareholders. The joint venture should also be called T-Mobile in the future, telecom boss Höttges should direct its supervisory board.

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