Industry Insiders Split on Potential Sprint-T-Mobile Merger

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Will Sprint pursue an acquisition of T-Mobile USA? That’s the question everyone is asking this week following a report on Friday that the former is looking into regulatory concerns that might arise from such a proposal.

The deal which supposedly could be on the table in early 2014 would bring together America’s third- and fourth-largest wireless operators, and deliver an even more formidable competitor to Verizon Wireless and AT&T, which are No. 1 and No. 2 in terms of subscriber numbers. The Wall Street Journal said the sale could be worth $20 billion.

The conditions are ripe for a merger such as this, says Yankee Group senior analyst Rich Karpinski, despite the fact that AT&T ran into roadblocks in its pursuit of T-Mobile two years ago.

Expect to be hearing about a Sprint/T-Mobile merger until either a) it happens, or b) something makes the combo impossible,” noted Karpinski. “Which of the two is more likely? Id say the formerif the two sides are talking its likely theyll eventually agree on a price and terms and try their luck putting the deal in front of regulators. Will it pass regulatory muster? U.S. operators are ecstatic with former industry executive Tom Wheeler at the helm of the FCC. If Sprint and T-Mobile want to make a go of this, and AT&T and Verizon dont raise major objections (beyond some likely spectrum divestment concessions) the deal very well could get done.

Karpinski says the proposal raises a number of questions, including “why now?” Even though Sprint’s bottom line is a lot better now that it’s 70 percent-owned by SoftBank, but it’s failing to stand out in the market. Rivals Verizon and AT&T “are showing few weaknesses,” he said, and T-Mobile is getting a lot of good press about doing away with postpaid contracts.

“Does it make sense? Although a Sprint/T-Mobile combination would be a strong third in subscribers and an even stronger first in raw spectrum holdings, the challenge of consolidating vastly different legacy networks into still very different LTE endpoint networks (made up of assorted spectrum bands and delivered/supported by a collection of radio network vendors) is a major engineering challenge,” the analyst noted. “New SoftBank money must have given Sprint execs a short memory of its Nextel debacle, its last big destiny-changing merger.”

Analyst Greg Miller of Canaccord Genuity doesn’t think it’ll even get to that stage.

Our reservations remain for a near-term merger between Sprint & T Mobile US. Given that the FCC and DOJ both pushed back on the proposed AT&T-T-Mobile US merger on the grounds that consumers would be hurt if the four national carriers were allowed to consolidate to three, its equally unlikely that either regulatory agency would view Sprint-TMUS any differently than that of AT&T-T-Mobile US,” Miller noted. “As such, we continue to believe that the regulatory hurdles will likely be high in the near term for a potential merger between Sprint and T-Mobile US.”

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