S SentinelOne Inc

By Drew FitzGerald, Dana Cimilluca and Dana Mattioli 

The boards of Sprint Corp. and T-Mobile US Inc. have agreed to an all-stock merger that, if allowed by antitrust enforcers, would leave the U.S. wireless market dominated by three national players.

It is the third time in recent years that the two rivals have attempted the combination.

New technology, stiff competition from wireless rivals and an aging cellphone sector keep driving Sprint and T-Mobile into each other's arms. Both companies hope to squeeze billions in savings by uniting operations despite their owners' different management styles and a tough regulatory environment.

The all-stock deal would combine Sprint, which has a market value of $26 billion, with T-Mobile, which has a market value of $55 billion, based on Friday's closing prices. The two companies also have about $60 billion of combined debt.

Joining forces would create a wireless provider with nearly 100 million cellphone customers, second only in the U.S. to Verizon Communications Inc. The combined company would be controlled by T-Mobile parent Deutsche Telekom AG and run by T-Mobile CEO John Legere.

The companies will still face an uphill battle in Washington. The Republican administration hasn't been consistently receptive to big corporate mergers. The Justice Department sued AT&T Inc. in November to block its $85 billion takeover of Time Warner Inc., and lawyers for the two sides are making closing arguments on Monday.

In a reflection of the risk that authorities would block an attempt at combining the nation's third- and fourth-largest wireless carriers, the Sprint-T-Mobile deal isn't expected to include a break-up fee that one side would owe should regulators block a proposed tie-up, the people familiar with the matter said.

The government also has a past victory under its belt: It forced AT&T Inc. and T-Mobile to abandon a planned tie-up in 2011.

In 2014, the then head of the Federal Communications Commission made clear that having four national providers was necessary to ensure competition and lower prices for consumers. That forced Sprint and T-Mobile to abandon their plans to combine. The current FCC chairman, Republican Ajit Pai, hasn't drawn the same line about the number of national providers.

Sprint and T-Mobile executives could make the case that times have changed. Investments in 5G infrastructure could blur the lines between cellphone provider, cable company and technology firm. Even using current technologies, Comcast Corp. has rolled out low-cost wireless service to its cable customers that rides on Verizon's network.

Dish Network Corp., led by its chairman Charlie Ergen, meanwhile is building a bare-bones wireless network that could be used to link autonomous cars, drones and other machines aside from cellphones. Companies could use that project to argue there are more than four nationwide wireless companies, though it would be a harder sell if Dish avoids directly competing with Sprint and T-Mobile.

"Charlie alone can change the prospects of this deal," said Blair Levin, a regulatory analyst for New Street Research LLC.

Wireless executives have long complained there are fewer ways to grow profits now that nearly every American adult -- and many of their children -- owns a smartphone. They hold onto those devices for longer, cutting into equipment sales. All four top carriers now offer plans that promise unlimited data, making it harder for them to show they're different from their rivals.

Even T-Mobile, which adds millions of customers each year mostly at its rivals' expense, has showed signs that growth is cooling. The company predicted it would add 2 million to 3 million subscribers with monthly contracts this year, fewer than in 2017. Such so-called postpaid subscribers are lucrative because they tend to spend more each month and switch less often than people on prepaid plans.

Meanwhile, network engineers say the next-generation 5G standards could allow wireless companies to serve huge new markets, from home internet service still dominated by cable companies to autonomous cars just now being developed.

But rolling out 5G services will require heavy investment in cellular spectrum and installing hundreds of thousands of antennas around the country, which gave new impetus to Sprint and T-Mobile executives to decide whether they will be going it alone or together.

AT&T said it will devote at least $23 billion to capital spending this year, excluding some investments in a new public-safety network. Verizon said it plans to spend at least $17 billion on capital expenditures in 2018. Both budgets are well ahead of Sprint and T-Mobile, which each spend under $10 billion a year on construction, electronics and the like.

Left alone, the spending gap will only widen as companies rush to install 5G equipment. "You can't win a race by having half the horses," said Roger Entner, an analyst for telecom consultant Recon Analytics Inc.

Winning the race wouldn't come cheap. Consulting firm Accenture estimates that U.S. telecom companies together could invest $275 billion over the next seven years to deploy the next-generation wireless technology.

No wireless company has much time to decide. The FCC will launch two new auctions for wireless spectrum licenses at the end of this year, forcing the companies to decide how they want to spend billions of dollars. Federal rules also require bidders to halt talks before the auctions to avoid coordinated bidding.

Write to Drew FitzGerald at andrew.fitzgerald@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and Dana Mattioli at dana.mattioli@wsj.com

(END) Dow Jones Newswires

April 29, 2018 12:51 ET (16:51 GMT)

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