The exterior of Sprint and T-Mobile stores.

Update: The Department of Justice announced July 26 that it approved the merger of Sprint and T-Mobile. The two companies will be required to supply cell tower sites, spectrum assets, and retail locations to Dish, and access to the T-Mobile network for seven years. A lawsuit filed by several states to block the deal still needs to be resolved. This story was first published July 25.

The Department of Justice is reportedly set to approve the $26 billion merger of T-Mobile and Sprint in a deal that would create a new, fourth wireless carrier. The deal would involve the sale of Sprint’s prepaid division to Dish Network.

The agreement, which has received the backing of Ajit Pai, chairman of the Federal Communications Commission but still needs DOJ antitrust approval, could bring to an end the seemingly never-ending bid by the two wireless carriers to combine forces. They maintain that the deal is needed for both of them to remain competitive, but consumer advocates argue that it would reduce competition and ultimately raise costs for customers.

More on Wireless Services

The deal also faces a legal challenge. A lawsuit filed by the attorneys general for 13 states and Washington, D.C. is demanding a halt to the proposed marriage, charging that if it were to go through, it would cost T-Mobile and Sprint customers at least $4.5 billion per year. Including all retail wireless service customers would push that figure even higher, they claim.

While a lot remains to be seen, analysts say the end result for consumers will hinge on exactly how well and how fast a comparatively tiny new carrier, run by Dish, could compete against a combined T-Mobile and Sprint, along with the even larger Verizon and AT&T.

And while industry observers say Dish could end up being successful, the company would face an uphill battle that could take years to win. In the meantime, a fourth player that can’t compete doesn’t do anything to help consumers, says George Slover, senior policy council for Consumer Reports.

He says the deal, which was first reported in The Wall Street Journal, would swap out an existing strong competitor and replace it with an unproven new player that will need years to build up to the point where Sprint is now—if it ever gets there.

“It simply doesn't make sense from the perspective of protecting and preserving competition, which is the mission of the antitrust laws,” Slover says.

A New Carrier

The deal will give the satellite-TV provider 9 million of Sprint’s prepaid customers, new wireless spectrum, and the ability to operate on T-Mobile’s network during a seven-year transition period, according to unnamed sources at The Wall Street Journal.

Both the Journal and Bloomberg, also citing anonymous sources, report that Dish will pay a total of about $5 billion for the customer accounts and spectrum licenses. 

Officials for Dish and Sprint declined comment on the reports. Spokespeople for T-Mobile, which was set to report its second-quarter financial results later on Thursday, didn’t immediately return emails seeking comment.

If approved, the deal would combine two companies with different personalities and different reputations for how they treat customers.

Sprint sits with AT&T at the very bottom of Consumer Reports' ratings of cellular providers, and T-Mobile is rated the best out of the current big four. The scores are based on ratings from over 100,000 Consumer Reports subscribers reporting on experiences with their current cell-phone service provider.

All four companies lag far behind smaller services such as Consumer Cellular, Google’s Project Fi, and Ting.

T-Mobile and Sprint have long argued that they need to merge to stay competitive and make the investments required to bring broadband internet service to rural areas and quickly build a 5G network. As part of the deal, they’ve pledged not to raise prices for three years and to sell off Sprint’s Boost Mobile service.

But Bill Menezes, a senior principal analyst who focuses on mobile services, notes that T-Mobile and Sprint had 5G investments in the works long before the deal was announced in April 2018.

“What they’re saying is, if they don’t get to merge, they won’t be viable national competitors,” he says. “But they’ve never said that they’re going to go out of business [if the deal doesn't go through], either.”

Menezes also says that while regulators could hold the combined company to its promise of freezing prices for three years, that only protects consumers for the short term.

“I’ve yet to see any major consolidation in any major industry that has increased competition for consumers,” he says. “And when you have less choice, costs ultimately go up.” 

New Bundles for Consumers

Like other TV providers, Dish is losing subscribers as an increasing number of people opt to use streaming services instead, Menezes says. As a result, companies are looking for new sources of revenue.

He notes that the cable TV giant Comcast recently started offering wireless service under the Xfinity Mobile name, which it bundles with its internet service. Xfinity Mobile uses the Verizon network but offers service at a significantly lower price.

Buying Boost Mobile would allow Dish to bundle wireless service with its TV packages and market both services through Boost Mobile’s network of stores and retail partners.

Dish already owns a substantial amount of unused spectrum that it could use to build out its wireless network, he says. And government regulations say the company is required to show that it's actually using spectrum bought in government auctions for something or risk having the government take it back.

Operating a small wireless network would allow the company to do that, he says.

All of that could mean deals for consumers. Craig Moffett, a senior research analyst and founding partner of the research firm Moffett­Nathanson, notes that Dish has a history of being an aggressive pricer.

“Still, most customers in the U.S. are on family plans that make it relatively difficult to switch providers,” he says. “Dish may well find its niche, but it’s not going to be easy.”