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Report Says A Major Problem Is Preventing The DOJ From Approving The T-Mobile-Sprint Merger

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CNBC’s David Faber followed the intricacies of the T-Mobile-Sprint merger, and his latest report suggests that the Justice Department is giving Deutsche Telekom, T-Mobile’s parent company, a week to reach an agreement with the agency regulation before taking action to block the $26.5 billion deal. The German telecommunications giant has a problem with the agreement between T-Mobile, Dish and the Justice Department.

As part of an agreement between FCC and the Deutsche Telekom, Dish buy Boost Mobile and sign a three-year mobile virtual network operator (MVNO) agreement with T-Mobile. This means that Dish could cellular services and data by using the T-Mobile network while building its 5G system. Originally, Deutsche refused to grant Dish access to 100% of the T-Mobile network in this agreement. However, Faber reports that Deutsche Telekom has retracted and is committed to ensuring full access to the T-Mobile pipeline during that period.

But what the parent company of T-Mobile wants to be included in an agreement are words for the effect that the contract will be considered solved MVNO if another company acquires a controlling stake in the dish network. What Deutsche Telekom is trying to avoid a situation in which a deep pocket cable company, or a company like Amazon, takes control of the Dish network and get the benefits of an MVNO agreement with T-Mobile.

Faber says the tone is more optimistic than pessimistic. But this does not seem to be the case with Wall Street. We are able to assess how much investors believe about the possibility of closing the merger. Each Sprint shareholder will receive 0.1256 of a T-Mobile shares for each Sprint share currently in possession. Multiplying the current price of T-Mobile to $77.54 by 10.256, we get the value of each share Sprint will be worth if the deal is closed at this time. For example, at current prices, Sprint holders will have a value of $ 7.95 in T-Mobile for each Sprint share held. But Sprint is trading at $6.86 right now. The difference of $1.09 is considered wide and indicates that investors do not believe that the agreement is executed. Last month, at one-point the spread was only 67 cents.

DOJ Is Worried About Replacing Sprint To Avoid Price Increases By Verizon And AT&T

Originally, the merger was announced on April 29, 2018, and the proposed merger will expire on April 28 this year. But with the FCC and the DOJ that reviewed the transaction, carriers extended the proposal until July 29th. Both parties could extend the agreement once again. Speaking of the FCC, in May the president of the Agency, Ajit Pai, agreed to recommend the closure of the merger after T-Mobile accepted several concessions that included 97% of the country with low-band 5G within three years of the end of the agreement. That rises to 99% after six years. Furthermore, the carrier will freeze the prices for three years after signing the merger agreement.

The concern of the Justice Department is to unite T-Mobile and Sprint, the number of major US carriers decreases by 25%. The agency fears that having a less important wireless service provider will allow Verizon and AT&T to almost never increase prices. The others see something more; a strong T-Mobile-Sprint could become an even more worrying competitor when it comes to the two largest wireless carriers. T-Mobile is currently the fastest growth of major carriers in the US and probably the most innovative. DOJ wants Dish to intervene and develop a replacement for Sprint.

Regardless of the decision of Deutsche Telekom, this long-standing drama could end within the next week.

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