T-Mobile's CEO Explains Why A Merger With Sprint Makes Sense

Advertisement

t-mobile CEO john legere

John Moore/Getty

T-Mobile CEO John Legere.

According to multiple reports, Sprint has agreed to buy T-Mobile for $40 per share, or about $32 billion.

Advertisement

The deal isn't official yet, but the companies will likely make a formal announcement in July or August.

It's not the first time T-Mobile has gone through this dance. In 2011, the Justice Department blocked AT&T from buying T-Mobile in a $39 billion deal, saying it would reduce competition in the wireless market. After that, T-Mobile nearly collapsed, bleeding subscribers to competitors AT&T, Verizon, and Sprint.

Complimentary Tech Event
Transform talent with learning that works
Capability development is critical for businesses who want to push the envelope of innovation.Discover how business leaders are strategizing around building talent capabilities and empowering employee transformation.Know More

But since T-Mobile's CEO John Legere took over in late 2012, the company has seen a remarkable turnaround. As we wrote in our profile of Legere, T-Mobile is now the fastest growing wireless carrier in the U.S. in terms of revenue and subscribers. A lot of that turnaround is due to T-Mobile rejiggering its plans and special offers to eliminate common annoyances with carriers such as service contracts, phone upgrades, and international data rates.

Still, regulators are expected to make a merger between Sprint and T-Mobile very tough. Industry analyst Moffett Nathanson thinks there is less than a 10% chance the deal is approved. With Comcast trying to buy Time Warner, and AT&T trying to buy DirecTV, Nathanson doesn't think the government will approve three mega mergers.

Advertisement

A T-Mobile-Sprint deal would reduce the number of major wireless carriers from four to three, giving consumers fewer choices and potentially making it possible for those carriers to raise prices.

In an interview with Business Insider a few weeks ago, Legere explained how today's T-Mobile merging with Sprint would be much more appealing to regulators than the failed AT&T deal from 2011. Legere's philosophy seems to be that AT&T's attempt at buying T-Mobile was a greedy move aimed at snapping up precious spectrum to give it an unfair advantage over competitors.

In his view, today's T-Mobile is a radically different company than the one AT&T tried to buy. Regulators should like the proposed Sprint/T-Mobile deal because Verizon and AT&T are so huge that it's tough for smaller carriers to compete. Sprint might be able to pitch its acquisition to regulators as a branding and marketing story, a scrappy company that can compete with the two giants dominating the wireless industry right now.

"The conversations that are taking place now are about T-Mobile's brand, T-Mobile's offer set, the uncarrier movement, and the management team at T-Mobile," Legere said of the press coverage on T-Mobile. "There's nobody talking about buying T-Mobile and shutting it down for spectrum. It means that you've got a company and a board and a team looking at its options."

While consumer advocates and regulators may wrinkle their noses at any sort of consolidation in the wireless industry, Legere thinks it's a good thing in T-Mobile's case.

Advertisement

"I would consider a consolidation opportunity with another player that allows me to use the spectrum that they have and the size and the customer base that I have to grow the business," Legere said. "I have no desire to turn T-Mobile into the son of something else."

Legere stands to gain a lot from a merger. Aaron Boyd, an analyst at Equilar, which specializes in executive compensation, says Legere could make over $41 million if T-Mobile joins Sprint. And there is talk that Legere will become the CEO of the new company.

t-mobile verizon sprint aT&T wireless subscriptions

Business Insider Intelligence

Sprint buying T-Mobile would make the combined carrier pretty huge. It'd have 85.4 million subscribers, versus AT&T's 102 million subscribers and Verizon's 103 million subscribers. It's going to be a tough pitch to regulators that such consolidation would be a good move for consumers.

Revenue for a combined Sprint and T-Mobile would be pretty close to what AT&T and Verizon are bringing in too.

Three massive companies controlling most of the wireless business would give them leeway to charge more down the road. That's in contrast to today's landscape where T-Mobile and Sprint can punch the big guys in the gut by offering cheaper plans and innovative offers that cause people to switch over. And the fact that Verizon and AT&T have reacted to T-Mobile's moves over the last year or so with similar offers is a good sign that even smaller carriers can be competitive.

Advertisement

Carrier data revenue

Business Insider Intelligence

By the way, that seems to be fine with Legere. Even if Sprint doesn't end up buying T-Mobile, Legere thinks the company is positioned to be successful on its own.

"We'll be bigger than Sprint in three quarters. Do the math. Do the lines," he said. "We're doing very well. We've got a lot of cash. We have tremendous growth. We're on track to generate a lot more. We have the ability to raise money."