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Sprint-T-Mobile Merger Might Be Dead in the Water

By Craig Galbraith
February 11, 2014 - News

**Editor's Note: Which is America's top wireless network? Click here to see what we discovered.* Or click here  for a recap of the biggest communications mergers in Q4 2013.**

What once seemed to be almost a certainty – a Sprint bid for T-Mobile USA – might not happen.

Sprint executives, who just last month seemed close to making a bid for T-Mobile, now are reportedly in talks about whether America's third-largest wireless operator should pursue the Magenta Network at all. Sprint was surprised by the level of opposition, as well as the public nature of comments involving the proposed merger, The Wall Street Journal reported.

The chairman of SoftBank, Sprint's majority owner, and Sprint CEO Dan Hesse, are said to have met with officials from both the Department of Justice and the Federal Communications Commission in recent weeks. After hearing a number of concerns, the company might need to go back to the drawing board to develop a better strategy, the WSJ said.

“We’re at the point of commenting on rumors about rumors, but that’s typical with these types of blockbuster proposals," noted Yankee Group senior analyst Rich Karpinski. "There seems to be the ring of truth here, if only because the word leaking out of both the DOJ and FCC has been so critical of this proposed deal. It’s easy to sympathize with SoftBank, which bought into Sprint with the idea it would have a fairly free hand to compete in the U.S. Standing alone, Sprint will be challenged to do so – even with its spectrum advantage via Clearwire, which can only be fully leveraged with capex and time. As for T-Mobile, despite recent market momentum (which unfortunately for the suitors seems to be largely behind the calls to block the merger), the operator will be equally challenged to reach the heft and impact of its larger rivals."

AT&T's attempt to buy T-Mobile a couple of years ago failed because regulators were concerned that it would turn the wireless marketplace into a duopoly (Verizon and AT&T), but initial speculation was that a Sprint-T-Mobile tie-up would work because it would leave three major players. Not so fast, apparently. T-Mobile, which has been gaining strength in recent months, might be poised to be a strong No. 4, or even a No. 3 if it can pass Sprint.

T-Mobile last spring did away with postpaid contracts for new customers, and it's been riding a wave of new subscribers and positive reviews ever since.

"Indeed, T-Mobile’s 'uncarrier' successes aside, the past two years have in many ways seen the market moving undeniably toward a combination of the U.S. market’s Nos. 3 and 4 players," Karpinski added. "If SoftBank is now asking itself ‘What comes next?’ it may be just as important a question for U.S. regulators. While it is not their job to ensure the success of market participants, it is their job to foster a competitive environment and look after the interests of consumers. Will the dynamics between two sets of players – pairs of like-sized operators mining the high end and low end via similar strategies, respectively – create the market they are looking for? Is that more choice or less? It’s premature to answer those questions at the moment, but it is the right time to be asking them."

Follow senior online managing editor @Craig_Galbraith on Twitter.

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