T-Mobile (TMUS) Stock is Surging after FCC Chairman Backs Merger with Sprint
Shares of T-Mobile US Inc. (TMUS) surged on Monday after the chairman of the Federal Communications Commission (FCC) confirmed that he will recommend the regulator approve the company’s mega-merger with Sprint Corp (S). A combined T-Mobile-Sprint enterprise will ensure that the latest 5G mobile technology reaches all corners of America, including rural areas where connectivity is lagging.
Mega-Merger to Be Approved
As CNBC reported Monday, FCC Chairman Ajit Pai supports the planned merger between two of America’s largest wireless carriers despite concerns over competition in the telecom industry. The merger supports two of the FCC’s top priorities around boosting access to mobile technology and ensuring America’s leadership pace in 5G.
“Two of the FCC’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity. The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives,” Pai said in a statement.
By joining forces, T-Mobile and Sprint will ensure that 97% of the U.S. population has access to 5G within three years. Over the next six years, it is expected that 99% of Americans would be 5G-enabled. The telecom giants have also guaranteed that nine out of ten Americans would have access to mobile broadband of at least 100 Mbps over the six-year horizon.
As Yahoo Finance reported Monday, T-Mobile and Sprint have made a series of changes to their proposed merger, which is valued at $26 billion. The companies are now expected to finalize their deal by July 29.
The two companies must submit a draft order to the FCC for final approval. The five-person commission will either accept or reject the deal by early June.
T-Mobile had previously attempted to merge with AT&T but the deal was rejected by the Obama administration over concerns that it would hurt competition in the wireless industry.
A Better Buy
Investors on the fence about which telecom carrier to buy will have a much easier decision if and when the T-Mobile/Sprint merger is finalized. At face value, T-Mobile is clearly the better pick. This is largely due to its expanding consumer base, including the highly coveted recurring-revenue segment. Huge subscriber growth and strong cash flow generation add to T-Mobile’s investment case.
In terms of new subscribers, T-Mobile rounded out its best fourth-quarter ever by adding 1.4 million new wireless customers. As Barron’s reports, that was the 23rd consecutive quarter with at least a million adds.
On the opposite side of the spectrum, Sprint absolutely needs a deal to happen if it plans to stay in the wireless industry for the foreseeable future.
T-Mobile’s stock price peaked at $80.93 on Monday, where it gained more than 7%. The stock was last seen trading at $80.00, where it was on pace for a new all-time high.
TMUS shares are up 26% year-to-date, outpacing the S&P 500 Index (14.1%) and communications services sector (18.7%) by a wide margin.
Disclaimer: Author holds no investment position in T-Mobile or Sprint at the time of writing.
Featured image courtesy of Shutterstock. Chart via Yahoo Finance.