Sprint, T-Mobile Pitch Merger Based on 5G Potential

T-Mobile is campaigning intensely for approval of its proposed $26 billion acquisition of smaller rival Sprint, arguing it will benefit consumers by accelerating the roll out of the latest-generation 5G mobile telephony networksOpens a new window .

The proposed deal comes after a similar merger plan in 2014, structured as an acquisition of T-Mobile by Sprint, was abandoned after running into opposition from regulators. For this round, success requires convincing the Department of Justice that consolidation leaving the US market with just three primary wireless providers will not harm consumers.

“This combination will create a fierce competitor able to deliver lower prices, more innovation, and a second-to-none network experience,” says T-Mobile CEO John Legere.

Seismic shift

Sprint CEO Marcelo Claure agrees: “Going from 4G to 5G is like going from black-and-white to color TV. It’s a seismic shift – one that only the combined company can unlock nationwide to fuel the next wave of mobile innovation.”

The shift to 5G technology is daunting for companies because of the huge capital investment in equipment required. Using waves in spectrum bands ranging from 600 MHz to 60 GHz, 5G can offer substantially faster data speeds than 4G – in theory up to about 10 gigabytes per second at higher bands, where capacity is greatest – but these waves have a shorter range and are limited to line-of-sight transmission. This means they are also weather-sensitive and may not work indoors, behind a mountain or in the rain.

Because it has a shorter range, and less ability to penetrate buildings and trees, high-band 5G requires more cell towers, new broadcast equipment and new devices.

Carriers including ATT, Verizon/Frontier and T Mobile/Deutsche Telekom are already installing 5G equipment, and all are planning a steady rollout of service channels. Both ATT and Verizon are looking at purchasing higher-spectrum bandwidth and have announced ambitious plans to introduce 5G technology over the next few years.

In response, T-Mobile says it will take an aggressive approach to the 5G market. “We’re going to run at it, and run at it hard,” Chief Technology Officer Neville Ray told USA Today. He expects the company’s 5G rollout to begin in 2019, with a target of 2020 for full nationwide coverage.

Spectrum investment

T-Mobile is putting money behind its ambition. At a recent Federal Communications Commission auction, the company paid $8 billion, its largest-ever investment, for 45% of the 600 MHz, low band 5G spectrum covering the entire US and Puerto Rico. The lower frequency spectrum does not offer as much speed as higher bands, but covers greater distances and penetrates obstacles more easily.

Sprint has announced plans to roll out 5G services this year using the 2.5 GHz band. Claure says it aims to install “dozens of small, unobtrusive, shoebox-sized cells mounted on street lights, buildings and other public infrastructure” in every neighborhood block of its coverage.

As competition intensifies among companies aiming to be first to launch a 5G network, they are scaling up promises of the potential of the new technology.

T-Mobile boasts: “5G will unleash new ideas and uses in areas like mobile HD video, connected cities and homes, self-driving cars, smart agriculture, consumer wearables, mobile virtual reality…and even more!”

Spur to innovation

The Trump administration seems open to the idea of the two groups merging, convinced by the argument that although the deal might reduce competition it would deliver enough offsetting benefits by boosting 5G development.

Commerce Secretary Wilbur Ross noted recently: “I think the pitch that Sprint and T-Mobile are making is an interesting one: that their merger would propel Verizon and AT&T into more active pursuit of 5G.”

However, telecommunication experts fear the deal will mean higher prices for consumers for a network technology that may provide only marginal benefits for most customers.

“No matter how you cut it, 5G is not a legitimate justification for this merger,” says Nicholas Economides, an economist at the NYU Stern School of Business. “Instead, the companies are likely looking to raise prices as the number of nationwide carriers would shrink from four to three.”

The companies stick to the traditional wisdom that tough competition, and the threat of being driven out of business, spurs innovation and investment.

“Most people would say the more options, the better – and they’d be right,” says Gizmodo technology writer Rhett Jones. “As we’ve seen in the last few years, when AT&T and Verizon killed their unlimited data plans – Verizon going so far as to say customers don’t need unlimited data – T-Mobile came roaring to life by offering the thing that everyone wanted.”