Sprint and T-Mobile are reportedly close to proposing a merger, a move expected to cut jobs. Few analysts have estimated how many, but the number is expected to be large. File photo
Sprint and T-Mobile are reportedly close to proposing a merger, a move expected to cut jobs. Few analysts have estimated how many, but the number is expected to be large. File photo

Technology

Could a Sprint merger with T-Mobile kill more jobs than Sprint has?

By Mark Davis

mdavis@kcstar.com

October 06, 2017 11:07 AM

UPDATED October 06, 2017 11:14 AM

A widely anticipated merger between Sprint and T-Mobile US could cost the nation more jobs than exist at Overland Park-based Sprint, according to one analyst.

Together, the companies reported employing 78,000 in their most recent disclosures. Sprint accounts for 28,000 of those, T-Mobile 50,000.

Merging the companies, said a report by Jonathan Chaplin of New Street Research, could eliminate “approximately 30,000 American jobs” — which is more than Sprint employs.

Chaplin was not available to discuss the report. His report did not itemize the 30,000 total.

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But it is clear that the total includes job losses beyond the merging companies’ direct payrolls. For example, Sprint and T-Mobile would be expected to shed some suppliers, vendors and other business partners if they were able to merge, and that would lead to secondary job cuts.

Direct payroll savings have been a big part of each analysis of a merger between the nation’s third- and fourth-largest wireless carriers. Few of those reports, however, have put a number on the headcount reductions.

One that did was by Craig Moffett of MoffettNathanson Research. Last August, he put pen to paper and found reason to expect 20,000 job cuts from a merger.

Moffett’s report showed most of those would be retail workers. Sprint and T-Mobile each want more retail outlets, but a combined company wouldn’t need as many stores as both have currently. It would make business sense to close stores near each other.

“We conservatively estimate that a total of 3,000 of Sprint and T-Mobile’s branded stores (or branded-equivalent stores) would eventually close,” Moffett’s report said.

Each of those, he said, would mean the loss of five full time jobs, or 15,000 jobs in total.

A merger also would threaten “overhead” jobs, the kind concentrated in headquarters such as Sprint’s in Overland Park and T-Mobile’s in Bellevue, Wash., in the Seattle area.

Moffett, however, said a merged company would be in no position to shed every duplicate employee in finance, marketing, legal, regulatory, payroll and benefits departments. There would be enough overlap, he estimated, to eliminate about 5,000 additional jobs.

“I would only add that it is quite likely that they would offset a good portion of these reductions by bringing customer service jobs back onshore,” Moffett said in an email Friday. “But in any scenario, headcount reductions would be a significant part of the story.”

Sprint CEO Marcelo Claure previously said the company would add 5,000 U.S. jobs, including call center jobs. At the same time, Sprint already has been cutting its payroll in an extensive cost-cutting effort that has spanned Claure’s tenure.

Claure’s 5,000-jobs promise was part of a larger jobs promise of 50,000 U.S. jobs that Sprint Chairman Masayoshi Son made to then President-elect Donald Trump in December. Son heads Tokyo-based SoftBank Group Corp., which owns more than 80 percent of Sprint.

Trump announces huge investment and job creation in U.S. by Sprint's parent company

President-elect Donald Trump said Tuesday that the Tokyo-based parent company of Sprint Corp. has agreed to invest $50 billion and create 50,000 jobs in the United States. Trump made the remarks with Masayoshi Son, chairman of Sprint and CEO of SoftBank Group Corp. that owns more than 80 percent of Sprint.

The Associated Press

Germany-based Deutsche Telekom owns about two-thirds of T-Mobile US’s shares.

Others contend even an estimate of 20,000 job losses from merging the two U.S. wireless companies may be too high.

“I don’t think it’s anywhere near 30,000,” said Berge Ayvazian, an industry consultant at Wireless 20/20. “I don’t know if it’s 10,000.”

Ayvazian said the job impact from merging Sprint and T-Mobile could as likely involve a shift to new jobs neither company has currently.

Larger rivals AT&T and Verizon have moved into content-related businesses, such as AT&T’s pending merger with Time Warner Inc. Neither Sprint nor T-Mobile has moved significantly in that direction.

Bloomberg reported Friday that Sprint and T-Mobile were “putting the finishing touches on a merger” and that news of the deal could come late this month, when each is expected to announce its most recent financial results and customer counts.

Meanwhile, Washington has readied itself for a proposal.

The U.S. Senate recently confirmed Ajit Pai, Trump’s nominee to head the Federal Communications Commission, and Makan Delrahim, Trump’s nominee to head the antitrust division at the Department of Justice. Both federal agencies would review any proposed merger between Sprint and T-Mobile.

The FCC also recently declared in an annual assessment that the nation’s wireless market provides “effective competition” after failing to find it since 2009.

Ayvazian said that hardly ensures that a merger proposal would gain approval, but it sets a much more favorable environment than had the FCC found that competition continued to be lacking.

Chaplin, the analyst who sees 30,000 potential job loses from a Sprint merger with T-Mobile, raised anew the possibility that a deal may not succeed regulatory scrutiny.

His report cited “a material risk” that Trump may see foreign-controlled companies eliminating those 30,000 jobs and seeking to raise prices on American consumers and decide to “tweet that it’s a bad deal.”

It could be enough, Chaplin wrote, to get the FCC and Department of Justice to return to their earlier positions that four national wireless rivals are better than three.

Mark Davis: 816-234-4372, @mdkcstar