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Tue July 22, 2014
What Would A Sprint, T-Mobile Merger Mean For Kansas City?
Talk of the proposed $32 billion merger of Sprint and T-Mobile continues to bubble, raising serious questions about the future health of the Kansas City regional economy.
The deal is still just rumored – and it's unknown if federal regulators will approve it, how it will be structured and even whether Sprint or T-Mobile would be the lead company in the deal.
What is clear is that Sprint is a vital company to the Kansas City area, and that the proposed merger comes at a delicate time for the regional economy.
“Right now Kansas City certainly is at a crossroads,” says Amy Liu, senior fellow and co-director of the Metropolitan Policy Program at the Brookings Institution. “Almost all its leading industries, except for one, are losing market share at a time when the U.S. economy continues to expand.”
A recent Brookings Institution study showed local professional services, areas like engineering, architecture and legal work, are still gaining against other regions. Other sectors, however, are slipping, especially the communications industry.
Through the 1990s, Sprint flourished and pushed the regional economy forward. The company built a corporate campus in Overland Park, Kan. big enough to handle more than 14,000 employees.
But the company has struggled since then, shedding jobs and market share. Sprint now employs only about 7,000 at its headquarters. SoftBank, a Japanese company, bought Sprint last year.
Even with that, Frank Lenk, an economist at the Mid-America Regional Council, says Sprint still leads the Kansas City economy, in some important ways.
“It’s one of the ones that really brings in a lot of dollars from around the country to Kansas City,” Lenk said. “And regional economies really exist because they serve the larger economy, it’s one of our biggest examples of doing just that.”
Most business don’t actually bring money into the Kansas City region, they just redistribute it a bit internally. Meantime every imported car, TV, piece of clothing, every service fee from an outside company, drains resources away from the region.
Regional economies need specialties, things they do or produce really well, that will sell to outsiders, Lenk said. One measure of innovation is the number of patents it produces per thousand workers, he said.
“Patents are the first step in commercializing inventions, one of the first steps anyway, and Sprint is by far our largest producer of patents,” Lenk said.
Sprint produced 41 percent of all the patents that came out of the Kansas City area from 2007 through 2011. While simply counting patents isn’t a perfect way to judge a regional economy, Liu said it is a good forecasting tool.
“Patent is a big predictor of income growth, and job growth and productivity growth,” Liu said. “So in that regard, it’s a very important indicator.”
And it indicates trouble for Kansas City. Even with all the patents coming out of Sprint, the region as a whole is way behind the rest of the country. Kansas City produces just 38 percent as many patents as the national average.
There are other innovative companies in Kansas City, such as Garmin, DST and Cerner to name a few of the larger ones.
A Sprint-T-Mobile merger would elevate the local economy, Lenk said.
“In the best of all possible worlds, they merge, the company stays here, the merged company is more successful, plus SoftBank allows new investment in new capacity,” Lenk said.
But Sprint’s owner, SoftBank, already moved some of Sprint’s research and development out to California. That could foreshadow a larger move if Sprint merges with Seattle-based T-Mobile, Liu said.
“If they were going to relocate to a different area so that the R&D and the headquarters be more adjacent to each other, that means Sprint could leave,” she said. “And if that’s the case, would most of the workers for Sprint go, or would they stay? And that’s the number one question.”
Because if the Sprint people take their idea-generating, revenue-producing ways elsewhere, it is going to be that much harder for the Kansas City area to build an innovation economy and keep the region from slipping into economic irrelevance over the years to come.
Local leaders could head off that grim scenario if they figured out a way to retain communications workers, Liu said.
“If they stay you’ve got to absorb them, and that means giving some real tangible job opportunities. Supporting them through start-ups, helping see that their talents are being used elsewhere, relevant to Cerner and Garmin and to all these other expanding parts of the economy,” Liu said. “You have an opportunity now, to be proactive.”
State and local leaders would have to work together around a plan that puts the long-term economic health of the region above temporary, parochial gains, which Lenk said the area needs to do whether or not Sprint retains its headquarters here.
Eds. note: A previous version of this story incorrectly reported the Overland Park Sprint campus as having a capacity of 1,400 employees. The correct number is 14,000.
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