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Sprint and T-Mobile Are Merging: Here’s What You Need to Know

After more than a year of wrangling with regulators, Sprint and T-Mobile finally won the Justice Department's permission on Thursday for a $26.5 billion merger.

The deal combines two smaller wireless networks to compete better with market leaders AT&T and Verizon. Still, the transaction can't formally close until the terms of the settlement between the carriers and the government are published, the public is given 60 days to comment, and a federal court evaluates the situation, as required by the 1974 law known as the Tunney Act. A separate lawsuit backed by more than a dozen attorneys general is also still pending.

The Federal Communications Commission had already signaled in May its intention to approve the controversial deal, which will reduce the number of major U.S. wireless carriers from four to three. The carriers had to make significant concessions to get the deal approved, however.

Here's how it could impact consumers:

There’s going to be a new carrier in town 

The previous two times the wireless industry tried to shrink to three major carriers (when AT&T tried to buy T-Mobile in 2011 and when T-Mobile and Sprint tried to merge in 2014), Justice Department lawyers objected and killed the deals because of antitrust concerns. That almost happened again with the current deal, until satellite TV service Dish Network entered the fray and offered to buy some wireless airwave licenses from Sprint plus Sprint’s popular prepaid wireless brands, Boost Mobile and Virgin Mobile, which have about 9 million subscribers, for $5 billion.

The move is intended to sway regulators who fear reduced competition from the loss of a major carrier. The plan is for Dish to use these assets to build a new, fourth major wireless carrier that could maintain the same amount of competition as before the merger. However, Dish, which doesn't offer wireless phone service currently, will be starting with far fewer customers than Sprint's 54 million today.

Some analysts are skeptical Dish can succeed. "While Dish could become the 4th 'major' U.S. wireless carrier, it may not gain scale to become a viable long-term player in an intensely competitive industry that faces its own challenges," Tuna Amobi, an analyst at CFRA Research, noted earlier this week .

Faster 5G wireless service–and in more places

One major promise that T-Mobile and Sprint used to gain government approval for the merger was that they would be able to offer new, super-fast 5G wireless services in more places, more quickly. Even after the divestiture of airwaves to Dish, Sprint would still have a huge amount of spectrum licensed in bands that are perfect for 5G. On its own, Sprint lacked the money to build a 5G network in much of the country.

But with the additional resources of T-Mobile, the planned 5G network should be finished much sooner. Sprint and T-Mobile promised 5G service to 97% of the U.S. population within three years and 99% after six years. They also agreed to a series of annual, escalating penalties of as much as $2.4 billion if they fail to meet the commitment. And Dish now must offer a 5G network covering 70% of people in the country by mid-2023 or face similar financial penalties. The quicker 5G expansions could also pressure AT&T and Verizon to expand their 5G networks more quickly. 

No price increases

The biggest reason for opposition against the merger was the possibility that consumers would have to pay more for wireless service in a theoretically less competitive market. T-Mobile CEO John Legere has sought to counter that concern by promising to keep prices the same three years and by pledging not to charge more for 5G service. Although that argument in conjunction with the asset sales ultimately satisfied federal regulators, it wasn’t enough for consumer advocacy groups and, more importantly, attorneys general in multiple states. 

Revisiting the debate on Friday, Legere got a bit heated on a conference call with reporters and analysts disputing the idea that the merger would reduce T-Mobile's drive to compete. "It's a bit dumbfounding to think that we've decided to go and build this network and go through this merger so that we can become the basic, lazy, fat, dumb, and arrogant player that we were born to teach how to behave," he said.

State lawsuit continues 

Even while the carriers were negotiating with the Justice Department, attorneys general in 10 states including New York, California, and Colorado, last month decided that no concessions could improve the deal to satisfy their concerns. On June 11, they filed a lawsuit that is still pending to block the merger. Four more states—Hawaii, Massachusetts, Minnesota and Nevada—joined the suit two weeks later.

Friday's news didn't appease the AGs. New York Attorney General Letitia James, leading the opponents, said the new concessions had not swayed the states that filed the lawsuit. “We have serious concerns that cobbling together this new fourth mobile player, with the government picking winners and losers, will not address the merger’s harm to consumers, workers, and innovation," she said.

T-Mobile and Sprint will now likely use the just-obtained endorsement from the Justice Department as a key argument in trying to dismiss the lawsuit. A trial is slated to begin on Oct. 7.