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T-Mobile-Sprint Merger Talk Heats Up, Might Benefit AT&T, Verizon

Merger rumor

**Editor’s Note: Please click here for a recap of the biggest channel-impacting merger and acquisition news from April.**

Here we go again: talk about a Sprint-T-Mobile tie-up. But does it have teeth this time?

German publication Handelsblatt is reporting that T-Mobile’s Germany-based parent company, Deutsche Telekom, is preparing a plan to merge with the Overland Park, Kansas-based mobile carrier.

Bloomberg report says Deutsche Telekom wants to maintain control of the combined company after an all-stock deal, according to Handelsblatt, which cited sources close to the company’s management committee and board.

Also this week, a new report by Moody’s Investors Service that looks at the credit implications of a potential merger said the combination would lead to a “dramatic increase in scale and an opportunity for considerable cost savings.” However, a successful integration likely would move slowly, allowing competitors such as Verizon and AT&T to advance their own strategies and take market share.

“A merger between Sprint and T-Mobile USA could ultimately extract $3 billion or more in annual run-rate synergies from operational expense savings,” said Mark Stodden, Moody’s senior vice president. “But integration could take three to five years to achieve, and if it stalls or is derailed by operational missteps, the downside is catastrophic.”

In January, JPMorgan said all bets are on the wireless competitors pairing sooner than later.

The combined spectrum holdings of the two companies would be large enough to allow T-Mobile to remain aggressive with its prices and keep its unlimited plans, Stodden said.

Concessions to regulators likely would be needed for such a transaction to go ahead, however, given the benefits from prior rulings against it, Moody’s said. Both Sprint and T-Mobile USA have a track record of lower prices than chief rivals AT&T and Verizon, and would likely be willing to commit to a regulatory mechanism that ensures continued price competition, especially in light of the spectrum advantage, it said.

While T-Mobile works to achieve cost savings, Verizon and AT&T could benefit from this potential merger, Moody’s said. T-Mobile could see a temporary drop in customers, especially as the Sprint network is winding down, it said. And operational missteps could damage T-Mobile’s service reputation, allowing Verizon and AT&T to continue to differentiate their services, while a failed integration could force T-Mobile to sell spectrum and concentrate market power with the large incumbents.


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