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By Tim McElgunn
Sprint Corp. Chairman Masayoshi Son’s December 2016 trip to tell then President-elect Donald Trump that $50 billion in planned technology investments would create 50,000 new U.S. jobs has the communications industry buzzing. Was Son greasing the skids for another run at T-Mobile US Inc.?
But if Son, who is also CEO of SoftBank Group Corp., does move to merge Sprint with T-Mobile—and it is far from clear that he will—he would face the immense challenge of how to explain to Trump that such a deal would likely run counter to the job-creation promise touted by both men at an impromptu news conference following their meeting at Trump Tower in New York. Instead, it could cost thousands of U.S. jobs.
Sprint and T-Mobile are the fourth- and third-largest U.S. mobile providers, respectively. Eliminating just 10 percent of jobs at Sprint and T-Mobile in the two years following a hypothetical deal—a conservative estimate based on previous wireless mergers—would amount to almost 8,000 direct job losses, with more possible at both companies and their suppliers in subsequent years.
For Son, who could be expected to lead a combined company in the event of a merger, thousands of direct and indirect job losses would undercut his investment-and-jobs pledge to Trump. The prospect of those losses could foreseeably make it harder to get approval for a deal from Trump administration telecommunications and antitrust regulators.
Convincing T-Mobile parent company Deutsche Telekom AG to sell would likely require an offer in the range of $100 billion, Roger Entner, lead analyst at Recon Analytics LLC, told Bloomberg BNA. T-Mobile's stock was trading at more than $60.74 per share, for a market value of about $51 billion, “and DT will be looking for a significant premium,” he said, noting that T-Mobile represents essentially all of the German company’s recent growth. T-Mobile’s share price rose to $61.15 at the market close on Feb. 2.
Sprint’s stock and cash is insufficient to pay that bill. Raising enough debt financing would depend on assurances that the deal would create billions of dollars in merger synergies. The U.S. mobile market is close to saturation, however, with approximately 1.2 handsets, tablets and other devices per subscriber. Mobile subscriber and revenue growth will become increasingly hard to achieve for a combined operator. Without the likelihood of a big boost in revenue, more of those promised synergies would have to come from cost savings.
Eliminating redundant jobs is the easiest way to slash costs without impacting service quality. When Cingular acquired AT&T Wireless in 2006 to create what is now AT&T Mobility, “Cingular doubled their customer base and doubled their spectrum ... with the same amount of employees,” financial analyst Patrick Comack of Zachary Investment Research and Management LLC, told The Associated Press.
The record of layoffs following earlier wireless mergers indicates the likely magnitude of layoffs among Sprint’s 29,000 employees and T-Mobile’s 50,000 employees, if a deal were struck.
Based on company financial reports and regulatory filings, Bloomberg BNA estimates that in the two years following the mergers of Sprint and Nextel in 2005, Cingular and AT&T Wireless in 2006, and Verizon Wireless and Alltel in 2009, employment at those companies dropped by a total of more than 20,000. The trend did not stop after two years. Data from industry trade group CTIA—The Wireless Association indicates that total employment in the industry dropped by 62,000, or 21 percent, between 2010 and 2015. Those numbers reflect only direct employment in the wireless industry.
Suppliers typically see contracts cut back or canceled altogether as merged companies eliminate redundant network infrastructure and supporting management systems, technology and other network equipment. Those moves often force cutbacks at suppliers as well. According to information prepared by Sprint’s corporate responsibility (CR) and sustainability group, Sprint relied on more than 6,000 outside vendors in 2013.
The ripples could extend even further. “Our focus at Public Knowledge is on the impact of industry consolidation on innovation,” John Bergamayer, senior counsel at the public interest group, told Bloomberg BNA Feb. 2. If the four current wireless providers dwindle to three, he said, and the two that combine are the industry mavericks, less innovation would lead to cutbacks beyond the core wireless industry. “So the impact there is also likely to be significant,” he said.
In addition to technical and administrative positions at Sprint and T-Mobile, jobs would likely be eliminated at retail locations and headquarters. After Sprint acquired Nextel, it shut down most of its operations at the acquired company’s headquarters in Reston, Va. and moved headquarters to Overland Park, Kan., a Kansas City suburb. If Sprint and T-Mobile merge, the combined company would almost certainly not maintain headquarters in both Overland Park and Bellevue, Wash., where T-Mobile is now headquartered.
A combined Sprint-T-Mobile would also have approximately 9,000 retail locations. T-Mobile expanded to 4,000 stores in 2016, and Sprint reported approximately 4,800 at the end of the year. Industry estimates show an average of five employees at each of those locations. If only one-tenth of those locations closed following a merger, 3,000 positions would be eliminated.
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