Sprint reaches deal for TMo, but regulators beckon? July 15 2014

Reports say Sprint/Softbank will pay $16bn for most of Deutsche Telekom's stake in TMo, but long review process lies ahead

By Caroline Gabriel

The long 'will they won't they' saga of Sprint and T-Mobile USA may be nearing a conclusion, with the US's third and fourth cellcos said to have hammered out a merger agreement - though one which is sure to face a lengthy and difficult review process.

The major owners of the two operators - Sprint's parent Softbank of Japan and T-Mobile's Deutsche Telekom - have reached a "basic agreement" to merge, according to Japan's Nikkei. Its unidentified sources said Softbank would buy more than 50% of T-Mobile's shares, mainly from DT, which still owns 67% of TMo even after it merged with MetroPCS. That would leave DT with about 15%, though it has been widely expected to seek a complete exit soon, and would value TMo at about $32bn.

The Japanese firm, which believes the merger is the only way to create a viable competitor to Verizon and AT&T, would pay cash and use stock swaps to reach the estimated price of over $16bn, and is said to have lined up credit from eight financial institutions, including Japan's top three banks plus JPMorganChase and Deutsche Bank.

More difficult than the financing will be the regulatory process. The companies, particularly Softbank's CEO Masayoshi Son, have been lobbying the FCC and Department of Justice for months, preparing the ground for the inevitable scrutiny of any deal which would reduce the number of mobile carriers in the US still further.

Softbank will be well aware that AT&T's own bid for T-Mobile distracted the carrier for about a year of reviews, before finally failing. However, it argues that the US needs a more powerful third player as a counterweight to the rising power of the big two, and that the competitive landscape must be seen in terms of all mobile, telecoms and media services, not mobile alone. This will be relevant as the regulatory authorities are also examining proposed mergers between AT&T and DirecTV, and between the two leading cablecos, Comcast and Time Warner Cable. Verizon last week denied interest in Dish, which itself wants a partner to launch itself as a mobile operator, and which is opposing all the mega-mergers.

In June, Son told a journalists that he had seen "new movement" in his preliminary talks with regulators, implying that they were softening their approach, but he will not be deluding himself that this will be an easy process. It is already reported that he has had to ask banks to commit financing for a longer time than usual, which will incur higher fees, because of the expected length of the approval process. Sprint is asking its own banks for about $20bn, while Softbank is seeking a similar amount, Bloomberg said. The funds would also be used to refinance some of TMo's debt, purchase spectrum at upcoming auctions, and fund operations.