Shares of T-Mobile U.S. Inc. (NASDAQ: TMUS) declined on Wednesday after the Justice Department’s antitrust division recommended that the enforcement agency block the telecommunication giant’s planned merger with Sprint Corp (NYSE: S). The news came mere days after the head of the Federal Communications Commission (FCC) said he would support the planned merger, which is said to run upwards of $26 billion.
Summary
- Planned T-Mobile/Sprint merger receives support from FCC chairman.
- Justice Department’s antitrust division doesn’t agree with the proposed merger.
- The deal is expected to be finalized by July 29, 2019.
Justice Department Recommends Blocking Merger
Citing sources familiar with the matter, CNBC reported Wednesday that staffers within the U.S. Justice Department’s antitrust division have recommended blocking the proposed telco merger.
Their concerns are likely tied to competition in a market that is already dominated by a small handful of players. As CNBC noted, the antitrust division is probably worried that T-Mobile will lose all incentive to reduce prices once it merges with Sprint. Aggressive cost-cutting has been the primary catalyst for T-Mobile’s surging subscription growth in recent years.
T-Mobile ended 2018 on a strong note, adding 1.4 million new wireless subscribers in the fourth quarter. The company has added at least one million new subscribers in each of the last 23 quarters, according to Barron’s.
FCC Chairman Endorses Merger
Earlier this week, the FCC’s Republican Chairman Ajit Pai formally endorsed the planned merger between T-Mobile and Sprint, citing two of the agency’s top priorities.
“Two of the FCC’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity. The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives,” Pai said in a statement, according to CNBC.
The newly merged company would ensure that 5G network technology covers 97% of the U.S. population within three years. Within six years, 99% of Americans would have access to the game-changing technology.
Pai’s endorsement sent T-Mobile shares soaring to new record highs on Monday. On Wednesday, the stock was down more than 1% and trading below $77.00.
Source: Yahoo Finance
Shares of Sprint were disproportionately affected by the recent news concerning the Justice Department. The stock plummeted more than 8% on Wednesday, giving back a huge chunk of its yearly gains.
Source: Yahoo Finance
Conclusion
This isn’t the first time T-Mobile has faced resistance merging with another telco. Its plan to join up with AT&T was thwarted by the Obama administration over concerns that the new mega-company would undermine competition. According to Reuters, the FCC and Justice Department are expected to reach a decision on the T-Mobile/Sprint merger in roughly one months’ time.
Disclaimer: Author holds no investment position in T-Mobile or Sprint at the time of writing.
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