T-Mobile’s 5G Argument to Regulators Is Compelling

John Legere, the chief executive of T-Mobile, believes in second chances. And he has a point. Mr. Legere said if regulators allow T-Mobile’s nearly $26.5 billion acquisition of Sprint — a deal they opposed in the past — it will help the United States lead in wireless technology. The rationale this time is compelling.

As the third- and fourth-biggest mobile companies in the United States by subscribers, T-Mobile and Sprint have a problem. The American government wants the country to be a leader in 5G technology, but for anything but the biggest of operators, that’s a challenge — if it’s doable at all. Together, their chances of completing a nationwide network are much higher.

The enlarged T-Mobile would put some $40 billion behind the effort over three years, Mr. Legere said. That will be partially funded by $6 billion of annual cost savings — and a pledge not to direct the bounty toward buybacks or dividends.

The investment would dramatically boost the industry’s levels of capital expenditure. The larger rivals AT&T and Verizon, which are competing to be leaders in 5G, dedicated approximately $22 billion and $17 billion to network investments last year. T-Mobile and Sprint together mustered just $6 billion, according to Eikon data. And 5G is an expensive endeavor. New Street Research estimated that Verizon will spend $35 billion over the next five years to cover just 20 percent of the country. The cost ratchets up “significantly” to expand beyond that, the research firm said.

Mr. Legere is pitching a plan that by concentrating on 5G, T-Mobile will induce his competitors to follow suit aggressively. He started a price war some six years ago that left AT&T and Verizon little choice but to copy T-Mobile’s moves. T-Mobile and Sprint also have complimentary spectrum that when slammed together would help improve coverage in urban, suburban and rural areas.

Will this pass muster with regulators? Much depends on whether consumers end up paying more. But that could happen even without a deal, since Sprint is severely hobbled. The risk, of course, is that Mr. Legere doesn’t stick to his word, and a merged company becomes bigger and more complacent.

But if Mr. Legere’s previous commitment to a mobile price war is an indicator, consumers may end up better off with this deal than without it.