AT&T, Verizon, T-Mobile, and Sprint are known as the “Big Four” wireless carriers in the United States. These four providers are the only ones that own and operate their own cellular networks, which means that their customers receive priority when the networks are congested.
For investors who are interested in Big Four stocks, Sprint [NYSE: S] and T-Mobile [NASDAQ: TMUS] form an interesting point of comparison. The two companies are currently in the process of merging, although it’s not necessarily a done deal.
In July 2019, the U.S. Justice Department gave its approval for the merger; however, it still requires approval from the FCC, and a number of U.S. states have filed a lawsuit to block it.
The potential $26 billion merger between Sprint and T-Mobile would create the third-largest wireless carrier in the country operating under the T-Mobile name, with 126 million customers. The deal is also expected to speed up the rollout of 5G wireless technology, which experts believe will be a game-changer for the telecommunications industry.
Right now, though, the merger has yet to be finalized, which means that investors should still consider shares of Sprint [NYSE: S] and shares of T-Mobile [NASDAQ: TMUS] as two separate entities. This prompts the question: is Sprint stock or T-Mobile stock the better buy right now?
Pros and Cons of Investing in Mobile Operators
One worry for the Big Four is that the U.S. cellular market is nearly completely saturated: 96 percent of Americans now own a mobile phone. This means that in order to gain new subscribers and retain old ones, these companies will have to compete on price and features, which will likely drive down their profit margins.
In general, the telecommunications industry is a challenging one for investors. Shifting consumer demand, new technological developments, and regulation from government authorities combine to make telecommunications a fairly unpredictable investment vehicle.
However, these concerns may be less important given the impending arrival of 5G, which could shake up the entire industry and unlock new avenues to profitability.
Both Sprint and T-Mobile [NASDAQ: TMUS] have officially rolled out their 5G networks in a select handful of cities across the country.
In addition, Sprint already has several 5G-capable smartphones for sale, including the Samsung Galaxy S10 5G and the HTC 5G Hub.
Is Sprint Stock a Buy?
Among the Big Four companies, Sprint [NYSE: S] is solidly in fourth place. The company’s revenues have declined by roughly 4 percent over the past several years, even as those of its competitors continue to grow.
One spot of good news is that Sprint’s latest quarterly earnings results were strong, allowing the company to meet its targets for fiscal year 2018.
In the event that the T-Mobile merger is successful, Sprint has signed a $5 billion deal with Dish Network for the divestiture of assets such as its mobile wireless spectrum and its subsidiary Boost Mobile, which offers prepaid and no-contract cell phones.
This agreement is a good deal for Dish, allowing the company to sell wireless phone services in the effort to increase its declining revenue.
Should You Invest in T-Mobile Stock?
T-Mobile needs the merger with Sprint [NYSE: S] less than Sprint needs the merger with T-Mobile.
In just the past five years, T-Mobile revenues have gone up by an exceptional 42 percent, as opposed to Sprint’s negative growth in the same period.
In addition, T-Mobile’s financial profile is in general stronger than Sprint’s. T-Mobile [NASDAQ: TMUS] has an annual revenue of $43.3 billion and an operating income of $5.3 billion, while Sprint has figures of $33.2 billion and $2.4 billion for the same metrics, respectively.
Due to its larger customer base and better financial position, T-Mobile’s outlook appears generally brighter than Sprint’s for the near future.
T-Mobile also has a clear “un-carrier” marketing strategy that promotes customer-friendly initiatives like no mandatory contracts and no early termination fees – one reason why T-Mobile has the highest customer satisfaction score of the Big Four companies. Sprint, meanwhile, has relatively little to offer in the way of competitive advantage.
Sprint Vs T-Mobile Stock: The Bottom Line
One thing is clear: investors should not put their money in Sprint stock anticipating that the merger will go through – especially since the odds have been estimated at no greater than a coin flip.
When news broke in March of the multistate lawsuit against the merger, shares of Sprint plunged by 11 percent. Sprint [NYSE: S] and its investors are clearly betting on the success of the deal, which is a high-risk, high-reward strategy.
Assuming the deal is approved, shares of Sprint and T-Mobile [NASDAQ: TMUS] will belong to the company, which makes this discussion a moot point.
Assuming the deal is denied, however, T-Mobile emerges as the clear smart choice. Sprint remains in fourth place among the Big Four and fading fast, while T-Mobile’s innovative strategy makes the company better positioned to compete in an increasingly difficult market with increasingly slim margins.