Sprint and T-Mobile have reached an agreement to merge
Sprint may finally get its merger with T-Mobile, but in a deal that leaves the Kansas City area largely on the sidelines.
The rival wireless carriers agreed Sunday to merge under the T-Mobile name, with T-Mobile CEO John Legere at the helm, and with T-Mobile’s home in Bellevue, Wash., as its headquarters.
A second T-Mobile executive, Mike Sievert, will be president. No Sprint executives have been guaranteed a title, though Sprint CEO Marcelo Claure will be a director of the proposed new T-Mobile.
Legere and Claure, in a brief interview Sunday, told The Star that Sprint’s Overland Park headquarters figures prominently in the merged company’s future, and they pledged an agreement to grow what will be a second headquarters for the company.
Legere praised Sprint’s Overland Park operation but said a lot of work lies ahead, from naming executives and locating departments to figuring out the best way to use all the resources of both companies.
Four years ago, when merger talks were strong, the deal would have gone the other way with Sprint as the leading company after a merger. It was the larger wireless carrier then.
Claure put Sunday's merger news in the context of Sprint’s extended history of layoffs and its ongoing turnaround effort. He was hired nearly four years ago not only to run the company but also fix it.
Layoffs have continued as Sprint is cutting 500 headquarters jobs this spring, casting insecurity over employees' futures before the merger news.
“This is the best thing that could happen to Sprint and to Sprint employees as we’re going to be part of the bigger company and we're going to be part of the growth story,” Claure said.
But that’s only if federal regulators agree to a merger. Most analysts say it will be difficult to convince Washington that the nation will be better off with three national wireless carriers instead of the four it has now.
When Sprint was trying to buy T-Mobile four years ago, federal officials convinced Sprint’s owner that it wasn't worth seeking approval.
Overland Park story
Jobs were a central theme as Legere, Claure and others pitched their deal Sunday afternoon.
"This transaction is a major jobs creator," Legere said in a conference call with investors.
Promises about jobs in Overland Park, where nearly 6,000 employees work at Sprint’s headquarters campus, did not come up in that conversation.
Those are well-paid headquarters jobs in marketing, finance, accounting, information technology, personnel and the like.
But everything that Overland Park does, Bellevue does, too. The question is whether and how much of that work will land here if the merger goes through as planned.
One thing Bellevue has going for it is success. Although Sprint recently posted some profits and added new customers, it has had to continue borrowing money, often in creative ways, to finance its still incomplete turnaround and invest in its network.
T-Mobile under Legere has added millions of new subscribers to surpass Sprint as the third largest carrier. It also has become a strong cash generator.
The likely impact of a merger worried many Kansas City area civic leaders just a year ago.
“It strikes fear in the hearts of all of us, that Sprint wouldn’t have the same footprint,” Tracey Osborne Oltjen, president of the Overland Park Chamber of Commerce, told The Star in April 2017.
Today, her comments reflect a resignation that a merger could be a lifeline for the struggling local company and suggest some city support for that effort.
"A combined T-Mobile/Sprint would benefit from our dedicated and highly skilled workforce in our region, which has been Sprint’s strongest asset," Oltjen said. "This talent base is key to our region’s innovation and entrepreneurial spirit."
Greg Musil, an Overland Park civic leader and city councilman in the 1990s, recalls persistent rumors swirling around the future of Sprint for years, even dating back to a proposed merger with WorldCom in 2000, when he was on the council.
"I think there are some advantages in providing certainty," he said.
While the Sprint campus would not be the main headquarters, Musil said the 200-acre property will continue to be a major asset for Overland Park and still will be an attractive office space not just for Sprint but for other high-quality companies and employees. Sprint opened the campus in 1997 to house 14,500 but uses only part of it now.
In corporate mergers, eliminating duplication on the payroll typically is a key way to save money, especially when companies are close rivals, such as Sprint and T-Mobile.
The companies said they expect to save $6 billion a year if allowed to merge, with the total benefits adding up to $43 billion over time.
Most of that will come from running just one network rather than two. The plan is to move Sprint’s customers over to an expanded and improved T-Mobile network that combines the best towers, wireless airwaves and other features of each.
But that accounts for only $26 billion in savings and the companies haven’t detailed the rest.
In pitching their plans, Legere and Claure emphasized that the new T-Mobile will be a job creator from the beginning. Job growth will come at retail stores, customer care centers and in rural areas where network services will expand.
Legere said the capabilities Overland Park houses will be needed.
“Two great companies are coming together and they have two fantastic headquarters locations, two amazing communities for people to work, two great labor forces and two great places to attract talent,” he said during a conference call with analysts.
But he couldn’t say that all jobs there were secure.
“I don’t know how to say that to each individual in that location,” Legere told The Star.
Claure similarly said he could not commit to a future philanthropic and civic role for the new T-Mobile’s second headquarters. It’s simply too soon to make commitments, he said. Sprint has been a meaningful corporate citizen through its own endeavors as well as the deeds of its employees.
Selling the benefits
If Legere and Claure could not assure Overland Park employees of their jobs, they promised much to nearly everyone else.
Consumers will benefit because the merger will allow a new T-Mobile to cut prices — even though prices have fallen under the four large national carriers already.
This runs counter to what many analysts have been expecting. They hope for some “market repair” with a comparably sized third national carrier seeing price cuts as a less attractive way to lure wireless customers from Verizon and AT&T.
Legere also promised new competition for consumers seeking broadband internet services. Most consumers get home internet service from a cable provider through the wire running to their living rooms.
Legere said the new T-Mobile will have so much capacity and capability that it will be able to compete with wireless internet in consumers’ homes.
Sunday’s merger news included promises to rural consumers, who often struggle to gain strong internet services. The cost to run cable through sparsely populated areas typically exceeds the revenues companies could hope to collect.
Legere said that will change with the wireless broadband capacity a merger of Sprint and T-Mobile would allow.
Many of the themes from the company’s presentations Sunday will be repeated as they seek approval from the Federal Communications Commission and clearance from anti-trust officials as the U.S. Department of Justice.
Analysts expect an uphill battle as Sprint’s 2014 hopes of a merger were shot down under the administration of President Barack Obama.
President Donald Trump named a new head of the FCC and new anti-trust chief at Justice, each of whom have been seen as giving a merger a more open chance. But the Trump Administration also is fighting AT&T’s planned acquisition of media company Time Warner Inc.
Analyst Berge Ayvazian said T-Mobile and Sprint executives were hitting the right points to start their pitch for regulatory approval. Their promises of bringing wireless broadband services and jobs to rural markets will help regulators find room to approve a deal, he said.
The companies also need to create a sense of urgency, such as presenting the merger in terms of a race to build a strong 5G network ahead of other nations. Legere presented the 5G promise as benefiting businesses and the economy.
Ayvazian, with Wireless 20/20, said a quick approval may be the deal’s best chance. Time is not be on the companies’ side.
“The longer it takes the less likely it is” to happen, he said.
The boards of the two companies said shortly before noon Sunday that they had agreed to an all-stock transaction that would result in a combined $146 billion company. The merger, which still requires government approval, would represent a bid to challenge larger rivals AT&T and Verizon.
T-Mobile’s largest owner, Deutsch Telekom, will be the largest owner of the combined companies. It’s 41.7 percent of the merged business won’t give it outright control, but it towers over the 27.4 percent ownership that Sprint’s parent company, Tokyo-based SoftBank Group Corp., will have. The rest of the new company’s shares will trade publicly.
The companies also said their merger will give them the means to deploy a 5G network, giving wireless customers faster data speeds and new choices in an increasingly converging world of telecommunications, internet service and entertainment.
Claure said that is a key reason for the merger. Those plans demand the assets and resources of each company.
“It’s a very simple rule of business: both companies need each other,” Claure said.
Reports that a deal was in the works had been circulating for several days. The two companies had reportedly resumed talks earlier this month. Sprint and T-Mobile had ended previous merger talks last November.
Sprint owner SoftBank Group had balked when it could not win terms that gave it control over the merged wireless company. SoftBank, which has investments in many other technology businesses, considered a wireless network essential to its plans.
SoftBank CEO and Sprint Chairman Masayoshi Son will become a director of the merged companies.
The companies also faced something of a deadline to pursue a merger now.
A government auction of federal airwaves for wireless carriers is expected to begin in November. As that auction nears, the FCC will establish a quiet period that would ban merger talks involving bidders.
The industry had been under just such a quiet period until late April last year, when wireless carriers were bidding on airwaves that the FCC had purchased from television stations willing to move to new signals or go off the air.