With Sprint, T-Mobile Gets Poorly Run Company With Poor Service (Update)

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Update: The deal closes with Sprint valued at $26 billion, and T-Mobile at $55 million. Together, the new entity will have about as many wireless customers as AT&T and Verizon each do. The new company will be run by T-Mobile CEO John Legere, who is a greater promoter, but will have a massive challenge which could be beyond his capacity as his takes on a tremendously complicated integration)

T-Mobile US Inc. (NASDAQ: TMUS) is about to buy Sprint Corp. (NYSE: S), according to rumors. The deal, characterized as a merger, will be engineered by the controlling shareholders. In the case of T-Mobile, this is Deutsch Telekom. For Sprint, it is Softbank. If the deal closes, T-Mobile will get a company that is poorly managed and is known for poor service. That makes the arrangement far from ideal. Corporate mergers of any kind have abysmal records. This deal has less going for it than most.

Sprint’s service problems show up in several pieces of important research. It flunked the Consumer Reports 2017 Cell-Phone Service Survey, finishing in last place. It finished last in the American Customer Satisfaction Index (tied at the bottom with T-Mobile). It also ranked last in the Open Signal State of Mobile Networks: 2018.

Sprint itself is the product of a disastrous merger between an earlier version of the company and Nextel. Marrying the two technology platforms was never done correctly, and customers fled. Mostly since that merger in 2005, Sprint has gone downhill. Japan-based Softbank took a majority ownership position in Sprint in 2013.

One measure of Sprint’s problems is that its share price has dropped 30% in the past year. Wall Street has shown only slightly more confidence in T-Mobile, as its shares have retreated 4% over the same period.

The theory behind the merger, which almost certainly will put T-Mobile’s management in charge, is that the combined company will be in better position to compete with behemoths AT&T and Verizon.

Troubles as broad as poor customer service, a poor 4G network, a small number of retail outlets and a shaky brand image are almost impossible to overcome, at least in the short term. T-Mobile will need to improve the Sprint network as the market races toward 5G. It may need to merge the two networks at some point, which is a technological nightmare. AT&T and Verizon do not suffer from these issues.

Looking back a year from now, T-Mobile probably will regret its decision.

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