T-Mobile and Sprint are considering concessions to save their merger, sources say

T-Mobile US Inc. and Sprint Corp., fighting to win regulatory clearance for their $26.5-billion merger, are considering possible concessions to salvage the deal, according to people familiar with the situation.

Among the top options being discussed is the separation and potential sale of their “prepaid” businesses, said the people, who asked not to be identified because the deliberations were supposed to be private. Other options — such as selling airwave licenses or setting up a new carrier through a network-leasing arrangement — are far less attractive, they said.

The two carriers, which announced plans to merge more than a year ago, face concerns that the deal would hurt U.S. wireless competition. Until now, T-Mobile and Sprint have taken a “bigger is better” approach, arguing that together they could better challenge larger rivals Verizon Communications Inc. and AT&T Inc.

The idea of concessions suggests that they’re anticipating a challenge from the Justice Department’s antitrust division and the Federal Communications Commission, which both have to sign off on the transaction. It’s common for companies seeking merger approval to offer asset sales to resolve concerns.

Shares of T-Mobile and Sprint pared losses Monday after Bloomberg reported on the possibility of concessions. After declining as much as 4.7%, Sprint ended the day down 2.7%. T-Mobile ended down 2.4%.

Last month, T-Mobile Chief Executive John Legere disputed a report that regulators had told the companies that the deal — as structured — would be opposed. Since then, Legere and Sprint Executive Chairman Marcelo Claure have visited officials in Washington to pitch the deal. They argue the new company could provide competition to cable companies with in-home broadband, as well as beat Verizon and AT&T in developing a nationwide 5G network.

Those promises may not have been enough. A concession offer, which would hinge on the deal getting cleared, may help advance the discussions. Already, the companies have said they will create a customer service center employing more than 1,000 people near Rochester, N.Y. — but only if the merger goes through.

The prepaid industry — also known as pay-as-you-go, in which wireless customers don’t have subscriptions — has been a focus of some states’ attorneys general. They fear that a consolidated, three-carrier market would harm low-income customers the most by reducing choices and raising prices.

Together, T-Mobile’s Metro brand and Sprint’s Boost and Virgin Mobile brands make up the largest segment of the U.S. pay-as-you-go market, with about 42%. TracFone Wireless Inc. would be second, with about 32%, followed by AT&T’s Cricket brand, at roughly 25%. These services are popular among people with little or no access to credit.

A spinoff of the prepaid business might give regulators and antitrust enforcers the type of structural remedy that can be held up as an example of ensuring competition in the market.

The idea has been floating around ever since the deal was announced a year ago. A Boost Mobile founder, Peter Adderton, whose business was acquired by Sprint when it merged with Nextel Communications in 2006, has pushed to have the companies sell one of the brands to preserve competition.