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Fitch: Sprint, T-Mobile deal approval hinges on broader regulatory review

Fitch Ratings believes that the combination of Sprint Corp. and T-Mobile US Inc. has more than a 50% chance of regulatory approval.

According to the rating agency, investors generally view the proposed merger as having a relatively low probability for regulatory approval due to its horizontal nature, which raises concerns that enhanced market power may lead to higher prices for consumers.

However, Fitch believes that the merger has a "strong case for a materially higher than 50% chance" of approval if the review incorporates convergence trends across wireline and wireless, ineffective competition within a broadband market dominated by cable operators and how the combination can substantially benefit consumers within the urban and rural markets.

Fitch said a broader regulatory review would consider the big picture which includes the evolving U.S. telecom landscape, market maturity and increasing competition, as well as the potential efficiencies provided by a Sprint/T-Mobile merger.

The rating agency also added that a Sprint and T-Mobile union could increase in-home broadband competition and generate material operating efficiencies that result in lower prices, better quality and enhanced service and product offerings for consumers.

The combined company would have a total implied enterprise value of approximately $146 billion. According to Kagan analyst John Fletcher, the merger of the No. 3 and No. 4 U.S. wireless operators would command a 31% share of the U.S. wireless market in terms of total subscribers. Kagan is a media research group within S&P Global Market Intelligence.

The transaction is being reviewed by the U.S. Justice Department and Federal Communications Commission.