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T-Mobile-Sprint Merger Gets Federal Judge's Nod, Stocks Rally

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After receiving a green signal on the long-pending $26.5 billion merger of the third- and fourth-largest (by subscribers) national wireless carriers in Federal Court on Tuesday, shares of T-Mobile US, Inc. TMUS and Sprint Corporation S increased 11.78% and 77.50%, respectively. Deutsche Telekom-owned T-Mobile and SoftBank Group-backed Sprint have added 21.7% and 25.3% in market value, on their own, compared with 9.9% growth recorded by the industry, over the past six months.

Repudiating a lawsuit by a group of states to block the combination, the ruling clears the path to create a strong rival in 5G wireless services to Verizon Communications Inc. VZ and AT&T Inc. T. While Judge Victor Marrero approved the deal without stipulations, the Department of Justice and Federal Communications Commission earlier approved it when the carriers agreed to sell some assets to Dish Network.

T-Mobile’s acquisition of Sprint has been held up for the last two years by regulatory concerns. Overland Park, KS-based Sprint’s stock has been plummeting since the beginning of 2017 as the company finds it increasingly difficult to survive in aggressive competition. The approved merger appears to have rejuvenated Sprint from a state of death.

Critics argued that the deal would hurt competition in the U.S. mobile landscape that would get translated into higher prices for consumers. On the contrary, T-Mobile and Sprint advocated the idea that the merger would better prepare the new company, New T-Mobile, to compete with arch-rivals and lead to lower prices and faster Internet speeds. The companies further said that the consolidation could speed up the rollout of a national 5G network, as the deal would combine their spectrum holdings.

The integration is undeniably going to disrupt the competitive landscape of the U.S. telecom market. Verizon’s shares fell 2.57% on this news and AT&T’s shares slipped 0.44%. The frontrunners now have more to worry about as the New T-Mobile plans to offer the same services at a discounted rate for three years, which include 5G. Its 5G network is likely to bring down the cost of delivering a gigabyte of data, providing enormous economic incentives for the company to lower prices.

New T-Mobile will compete for consumers at all price points, and customers including prepaid and Lifeline will have access to the same 5G network and services. With speeds up to five times faster than current LTE in just a few years and reaching as much as 15 times faster by 2024, New T-Mobile’s 5G network will likely change the way consumers use the Internet. New T-Mobile’s plans to deploy a higher quality and more robust network for rural America, and to prioritize more vulnerable urban populations will ensure that all Americans have a meaningful chance to thrive in the 5G economy. It will deliver 100-plus Mbps speeds for wireless broadband to 90% of the population and in-home service to more than half the country’s households by 2024.

In the first year, New T-Mobile is expected to have more than 3,500 full-time U.S. employees than the standalone companies would have had, and 11,000 more people by 2024. Moreover, plans to build more than 600 new retail locations and five new customer experience centers will create about 12,000 jobs. The merger, which is expected to be closed as early as Apr 1, remains subject to certain closing conditions, including probable additional court proceedings, and satisfactory resolution of outstanding business issues among the parties.

T-Mobile continues to invest in building its nationwide 4G LTE network, which covers 327 million Americans. It also continues to deploy its 600 MHz spectrum, which covers 248 million people, and is live in 8,900 cities and towns across 49 states and Puerto Rico. In December 2019, the company launched America’s first nationwide 5G network, including prepaid 5G with Metro by T-Mobile. This covers more than 200 million people and more than 5,000 cities and towns across the United States with 5G.

The company introduced two new 600 MHz 5G capable superphones, the OnePlus 7T Pro 5G McLaren and the Samsung Galaxy Note 10+ 5G. T-Mobile anticipates offering an industry-leading smartphone portfolio built to work on nationwide 5G in 2020. With the New T-Mobile, it will be able to combine this foundational layer of 5G with Sprint’s 2.5 GHz mid-band spectrum.

T-Mobile’s shares have more room to run once this deal is closed and integration begins to realize synergies. T-Mobile has a long-term earnings growth expectation of 11%. The company surpassed earnings estimates in the trailing four quarters, the beat being 19.5%, on average.

Both T-Mobile and Sprint currently have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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