Sprint (S), T-Mobile (TMUS) Merger One Step Closer to Completion

The notion of Sprint NYSE: S and T-Mobile NASDAQ: TMUS  getting together has captured the imaginations of investors for some time now. With the perennial third and fourth-ranked duo—though which was third and which was fourth switched over back in 2014—looking to pair up, it could have meant a real shakeup in the field for mobile device providers. Now, reports emerge to suggest that one of the last hurdles in the way of their merger, a US District judge's ruling, is now clear, sending both Sprint stock and T-Mobile's into a climb.

A Huge Win for Both Sides

Thanks in large part to the ruling, Sprint stock was up around 75% in premarket trading. Perhaps more interestingly, it's managed to hold onto those gains since the premarket bump hit. For pretty much the entire year before that, Sprint stock was about as flat as the running track a sprinter would need to run, but the recent bump upward makes it look more likeTesla NASDAQ: TSLA than Sprint.

T-Mobile got a similar massive ramp up, though on a percentage basis, it's much lower than Sprint's. T-Mobile was up a little over $10 a share at one point, though it's given back some of those gains since.

Both sides have been working toward a merger for years now, but at each turn, the plans were shut down amid fears that regulators would put the kibosh on the deal to begin with. With this bit of approval, that seems much less likely to be an issue. The deal isn't done yet, though; reports suggest that the California Public Utilities Commission needs to approve of the merger, a hurdle that may be too much for the duo to pass.

Not Exactly a Popular Move, Though

While the federal government seems to be all right with this notion—a US District court just gave its nod, and both the Federal Communications Commission (FCC) and the Justice Department rang assent as well—state governments are less than happy. The attorneys general of 13 states and the District of Columbia brought suit in a bid to block the deal.

Why the outcry? The states had a fairly reasonable notion; if the number three and number four firms got together, that would shrink the Big Four to the Big Three, and that means less competition for the firms remaining.

It's kind of easy to brush that notion aside, though, given the sheer number of smaller mobile service providers in the market. T-Mobile and Sprint responded to those allegations readily enough, noting that a combined third and fourth-place firms would allow them to better compete against the top two, making a stronger third alternative more viable than a weaker third and fourth alternative would be. It would also help drive the construction of a nationwide 5G network, which T-Mobile has already been working on.

The Court Weighs In

The court, meanwhile, took both of these sides in hand and noted that there just wasn't enough evidence to suggest which one of the two sides was right. The decision filed by Judge Victor Marrero noted that there was a clear stalemate between the two sides. The states' assertions, Marrero noted, came with little evidence that “anti-competitive behavior” would follow. Moreover, Marrero noted that Sprint's ability to function long-term was doubtful at best without the merger, and given Sprint's steady decline since it went from third to fourth place back in 2014, that's not so out of line. Finally, issues of Dish Network NASDAQ: DISH not stepping in as a wireless provider in accordance with terms of the deal—as the states suggested would happen—were rejected.

End Result: One Mixed Bag

Now, with very little left to stand in the way of T-Mobile and Sprint, it's starting to look like the deal will finally go through. The states have vowed to continue fighting, but with one loss already on the books any further attempts aren't likely to work. California seems to be the big question right now, but given that California's attorney general was part of the armada of states pursuing a deal shutdown, this may be all the ammo the deal-busters need.

It's easy to forget, though, that there are other competitors out there in the market besides T-Mobile, Sprint, Verizon NYSE: VZ and AT&T NYSE: T. With a legion of smaller local options, customers will likely be able to find some deal more preferable to them even if T-Mobile and Sprint aren't separate firms much longer. The idea that a combined T-Mobile and Sprint are a greater threat to Verizon and AT&T, meanwhile, has a lot of merit by itself. Only time will tell how this all works out,  but a teamed-up Sprint and T-Mobile could be valuable in the wider smartphone market.