An obscure wireless industry deal from last year can help explain why T-Mobile and Sprint finally agreed to merge this week after years of flirting with a deal. Last May, Verizon signed a deal to buy a company called Straight Path for more than $3 billion. If you remember the deal, it's probably because AT&T and Verizon battled back and forth for the company in an insane bidding war. After a series of bids and overbids, Verizon ended up paying $184 per share for Straight Path, which had been trading at around $30 per share. The merger was completed this February. Verizon and AT&T both wanted Straight Path for the rights it owned over certain parts of the wireless spectrum -- specifically, something called millimeter wave frequencies. The two largest U.S. wireless providers believe owning this spectrum will be helpful as they build out 5G wireless networks, which could provide speeds about 100 times faster than the current 4G networks.

According to people familiar with the sale process, T-Mobile really wanted Straight Path too. But once it saw the bidding war break out between AT&T and Verizon, it decided it wasn't going to win and dropped out of the bidding. T-Mobile has a market capitalization of about $51 billion. AT&T and Verizon both have market caps of about $200 billion, and AT&T is trying to get even bigger with its $85 billion pending deal for Time Warner. Sprint's market valuation is about $22 billion, and it's 85 percent owned by Japanese tech giant SoftBank. "We've looked at our spectrum positions and decided this was the right time to put these companies together," Sprint CEO Marcelo Claure said in an interview Monday. The Federal Communications Commission is auctioning off two more bands of millimeter wave wireless spectrum this year -- 1.55 gigahertz of spectrum in two bands known as 24 GHz and 28 GHz. Straight Path showed Sprint and T-Mobile what to expect in these auctions -- as separate entities, they were going to have a very difficult time competing with Verizon and AT&T for 5G spectrum. But the financial firepower from a combined balance sheet could give them a chance to challenge the two largest wireless players.

Why Masa finally did the deal

The Straight Path deal was one of the factors that pushed the companies to jump-start 2017 negotiations. Those negotiations ended up failing, but several things have happened in the past few months to bring SoftBank's Masayoshi Son back to the table. First, the two companies' stock prices settled, making the valuation of both companies more transparent. In a stock-for-stock merger, the stabilizing of the share prices, without as much premium built in from imminent M&A speculation, helped convince both sides of their relative values, said two people familiar with the deal. Second, both Sprint and T-Mobile now believe AT&T and Verizon could roll out 5G in select U.S. cities as soon as later this year. The 2018 Winter Olympics in South Korea already debuted 5G technology, although handset technology won't bring 5G to the U.S. en masse until 2019.