Can Sprint Acquire T-Mobile?

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It's that time of the month! The Federal Reserve's rate-setting committee convenes for its two-day meeting starting tomorrow. Stocks appear to welcome the prospect this morning, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 0.80% and 1%, respectively, at 10:15 a.m. EST. The odds that the Fed will decide Wednesday to scale back its monthly bond purchases -- until recently considered a nonstarter by those watching the central bank -- have increased significantly in recent weeks with the release of economic data that suggest an improvement in the pace of the recovery. Separately, the Senate is expected to vote this week to confirm Janet Yellen as next chair of the Federal Reserve.

And then there were three? On Friday, The Wall Street Journal reported that Sprint (NYSE: S  ) is preparing a bid for T-Mobile US (NYSE: TMUS  ) in a deal that would combine the No. 3 and No. 4 telecom carriers, reducing the number of major carriers to just three.

Any deal could face opposition from antitrust authorities. The Justice Department blocked an attempt by AT&T to acquire T-Mobile in 2011, calling the latter an "aggressive competitor" that keeps the other three major carriers honest on pricing.

Combined, Sprint and T-Mobile would boast 98 million subscribers, where AT&T (NYSE: T  ) and Verizon (NYSE: VZ  )  respectively have 108 million and 101 million. That has the looks of an oligopoly; however, those numbers understate AT&T and Verizon's heft. Once you look at postpaid customers -- the most lucrative segment -- the balance of power looks different. Sprint and T-Mobile together can muster up 53 million postpaid customers, but that would still leave them some ways behind Verizon Wireless (95 million) and AT&T (72 million).

There are other potential obstacles to the deal: financing comes to mind. The ink is barely dry on Sprint's acquisition by Japan's Softbank, a conglomerate run by aggressive deal maker Masayoshi Son -- that deal was completed in July. That same month, Moody's and S&P downgraded Softbank to junk status; Sprint was already junk rated.

In that context, the odds of a deal at this stage look pretty speculative. That's a shame -- given the massive investments required in network infrastructure and spectrum, a combined Sprint-T-Mobile would likely be a more effective competitor to AT&T and Verizon, which currently account for nearly all of the U.S. industry's profits.

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Read/Post Comments (3) | Recommend This Article (1)

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  • Report this Comment On December 16, 2013, at 12:15 PM, wildstar69 wrote:

    I've been a Sprint customer for 13yrs and getting ready to leave due to the horrific service. I do believe their company is headed in the right direction though and within the next year or so will do really well. I own a big chunk of Sprint shares and think the stock will hit in the $25-30 range within 3yrs. We'll see. I think the TMobile merger would be a horrible idea simply due to the technology involved. Sprint already uses a tri-band CDMA system and there are hardly any phones which support it. I think there are 5 right now including one that is getting ready to come out. I really don't know how they could incorporate TMobile's GSM network without wasting billions of dollars making them compatible. If you remember they tried this with Nextel and it sank Sprint. Sprint should focus on finishing their own network due to their massive store of bandwidth they already have. Once they get their network complete and force manufacturers to build tri-band phones, Sprint will dominate and can then start buying up regional carriers to fill in the holes. A TMobile merger is not the answer.

  • Report this Comment On December 16, 2013, at 7:35 PM, ems79 wrote:

    The technology concerns are less and less of an issue. Most phones are available with multiple radios, and there is a strong push to converge on the LTE standard--it's having license in the frequencies that you support that matters most.

    Anyway, Nextel was just a cluster-eff when it came down to it. It was a completely different model from traditional cell phone and that is what what dragged things out (not to mention supporting the gajillions of legacy iDen devices in use by organizations that are not exactly looking to be "new every two" type customers)

    Sprint has historically been generous with their data and minutes.

    T-Mo has recently become the cell phone Santa Claus with their unlimited everything, free global roaming and a reasonably priced periodic upgrade plan (not to mention cheaper prices once you own your phone!)

    In that regard they've got a similar mindset.

    As a T-Mobile customer (and stock owner) I'd like to see them just run with their current ideas. I think a merge is going to be a wrench in whatever plans they've got.

  • Report this Comment On December 16, 2013, at 9:57 PM, Gridlocked wrote:

    Verizon has more total customers currently than AT&T does despite what the article states.

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