Wireless carriers are getting hit on reports that the US government wants to ensure that there is a respectable fourth player in the space if the DOJ approves the $26 bln Sprint (S) -4%, T-Mobile (TMUS) -2%merger.
Last week, the FCC blessed the deal that would leave only three major wireless carriers on the condition that Sprint sell its prepaid brand Boost Mobile.
Yesterday, Bloomberg reported that the two leading US cable companies, Charter (CHTR) -1% and Comcast (CMCSA) -1.3%, met with the DOJ to discuss interest in acquiring airwaves that Sprint and T-Mobile could be forced to sell in order to appease regulators. Both cable companies launched wireless services in recent years, licensing Verizon's network. The impending rise of 5G wireless networks could eventually threaten Charter and Comcast's broadband internet businesses, which have become their bread and butter as more consumers forgo the traditional cable television subscription.
Last night, Reuters reported that Amazon (AMZN) -1.5% is also interested in Boost Mobile, which would give it access to T-Mobile's wireless network for six years. It should surprise no one that Amazon is interested in entering a new business venture. Amazon Prime has over 100 mln members in the US while its voice assistant technology Alexa is a key strategic asset.
DISH Network (DISH) +2% would be a natural suitor. DISH plans to launch a next generation wireless network with its large spectrum holdings but faces regulatory and licensing uncertainties form the FCC.
Market leaders Verizon (VZ) -3% and AT&T (T) -3.5% are falling in response to the DOJ's reported efforts to ensure that competition among wireless carriers will not be reduced if a T-Mobile-Sprint merger does go through. Bernstein was reportedly out cautious on the carriers given the threat from Amazon, a company that no one wants to compete with.
On the other hand, tower stocks are hitting all-time highs on the prospect of having a new source of demand for their tower assets: Crown Castle (CCI) +2.5%, SBA Communications (SBAC) +2.3%, American Tower (AMT) +2.2%.
If the merger with T-Mobile does not go through, Sprint's future is quite grim. The company with almost $33 bln in net debt would need more capital to build a competitive 5G network -- Softbank (SFTBY) has an 84% stake. With the DOJ taking action to stem competition concerns and reported demand for potential divestments, merger consummation seems more likely. This morning, CNBC's David Faber reported that DOJ approval was still 50/50.