Former Sprint CEO Claure testifies that without T-Mobile, Sprint will have to raise prices

Former Sprint CEO Claure testifies that without T-Mobile, Sprint will have to raise prices
Late last week, T-Mobile CEO John Legere testified in front of Judge Victor Marrero in a non-jury trial being held in Manhattan. The lawsuit was filed by state attorneys general and the AG of Washington D.C. seeking to block what they call the "anti-competitive" merger between T-Mobile and Sprint. After some states settled with T-Mobile, 14 attorneys general are still taking part in the legal action.

While Legere was on the stand, he said under oath that Sprint will not survive if the merger with T-Mobile is blocked. The judge probed in an effort to discover whether the amazing success that T-Mobile has achieved from 2012 to date could be duplicated by Sprint as a standalone firm. But the executive replied that Sprint's current condition is much worse than anything T-Mobile experienced when he took over as CEO. Legere also said that with the mid-band spectrum that T-Mobile hopes to obtain from Sprint in the merger, the carrier will "triple the total 5G capacity of standalone T-Mobile and Sprint combined." If the deal gets shot down, Legere said under oath that in some markets, the carrier will "exhaust capacity in the next two to four years."

Claure says that a standalone Sprint will have to raise prices and borrow more money

Legere also testified last week that if the merger fails, Sprint "would be sold for parts" within two years. At least one other Sprint executive said under oath that he also sees a quick end to Sprint if the merger with T-Mobile does not take place. According to Bloomberg, former Sprint CEO Marcelo Claure does not totally agree. Under questioning from the judge, Claure said from the witness stand today that "Those are possibilities. I don’t necessarily agree completely." However, he did admit that Sprint's situation without the deal would be dire and the company would be forced to leave several markets.

Today, the attorney for New York State, Elinor Hoffmann, showed the judge a document from Sprint’s chief commercial officer, Dow Draper. In the document, Draper told the California Public Utilities Commission that "Sprint will be here to compete whether we merge with T-Mobile or not."

But even if Sprint survives, the wireless provider won't look the same as it does today. Claure said, "Sprint two years from now would be a very different from Sprint today, because we would cease to be a national competitor." And he might have helped Legere's cause by stating that a standalone Sprint will need to raise prices and borrow money to survive. The states are concerned that eliminating Sprint will lead to higher prices in the wireless industry.

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If Sprint has to raise prices even if the deal is blocked, the states are merely hurting the opportunity that the U.S. has to become a global leader in 5G. T-Mobile recently launched the first nationwide 5G network in the states by using its low-band 600MHz spectrum. But to finish building out a fast 5G network that will cover more Americans, including those living in rural areas, T-Mobile needs to take control of Sprint's 2.5GHz mid-band airwaves. The U.S. is hoping to become a global leader in 5G since the faster download data speeds will lead to the creation of new industries and technologies that could lead to an economic boom.

The plaintiffs might have scored points with the judge when their attorney presented an email to the judge dated Dec. 11, 2017. The email was written by Masayoshi Son, the CEO of  SoftBank. The latter owns 80% of Sprint and Son wrote that SoftBank would be willing to pay off $40 billion of Sprint bonds that are seen as a potential albatross around the company's neck. But that email was written over two years ago and SoftBank has recently shown an indifference toward the carrier. The company took an initial 78% stake in Sprint when it beat out Dish Network to buy the carrier in 2013 for $21.3 billion.

The fate of the $26.5 billion merger rests in the hands of the judge. The FCC and the DOJ have already approved the transaction, which was first announced on April 29th, 2018.

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