It's been more than two years since Sprint (NYSE:S) and its parent company, Softbank, ended their merger pursuit of T-Mobile (NASDAQ:TMUS), after regulators indicated that they would block such a deal. Since then, rumors have continued to pop up that Sprint is still interested in T-Mobile, and the self-proclaimed un-carrier has indicated that it's open to merger talks.
When asked whether T-Mobile would be interested in any type of "convergence" with a wireless or cable company at the Deutsche Bank investor conference earlier this month, T-Mobile CFO Braxton Carter said: "I really think it's a question of when, and not if. There are significant benefits that we'll see with convergence. Both from a wireless carrier standpoint as well as a broadband cable standpoint."
But it's becoming increasingly clear that T-Mobile would prefer merging with a cable provider, rather than entertain another proposal from a wireless rival.
The third time isn't always a charm
Carter mentioned that when cable and wireless providers are integrated, then companies are able to better understand their individual customers. He said that it could "provide amazing monetization opportunities."
Reports have surfaced that Softbank would cede control of Sprint if a merger with T-Mobile were to go through, but that might not be enough to entice the wireless carrier into another potential regulation quagmire. "The true career people inside of these agencies don't really change," Carter said at the conference. "The precedents, the tool sets, the type of analysis that they do doesn't really change."
In short, Carter believes that it may not be worth pursuing a consolidation of the U.S. wireless carriers based on its past experiences. T-Mobile's skittishness is understandable when you consider that not only did the 2014 deal fall apart because of regulators, but an earlier proposal from AT&T in 2011 was also thwarted by the Federal Communications Commission and the U.S. Department of Justice because the agencies believed that going from four major carriers to three would reduce competition.
T-Mobile's CFO indicated that he strongly believes another merger attempt between his company and a wireless provider wouldn't end well.
"While the odds certainly have potentially increased, I don't think it's the least bit probable with high likelihood that you could actually transact, given some of the precedents that are out there," Carter said."
A merger T-Mobile could get behind
Instead, T-Mobile appears to be building the case that its position in providing end-to-end mobility across the entire country would be a perfect fit for a cable provider looking to expand beyond its regional footprint.
T-Mobile has expanded its wireless business at a breakneck pace over the past few years, which could make it an even more desirable merger partner. The company added 8.2 million net customer subscribers in 2016 -- marking its third year of 8 million or more net adds -- and is on track to match rival Verizon Communications' 320 million LTE points-of-presence (POPs) coverage by the end of this year.
Carter said that cable companies will never be able to deliver truly ubiquitous video content because of their limitation in specific geographical markets, and a wireless merger could fix that. "And I think that's why, eventually, we'll get to the point where convergence will become a reality," he said.
The current merger landscape may bode well for T-Mobile, too. AT&T's $85.4 billion deal to acquire Time Warner valued the cable giant at a 35% premium on its stock price before the deal was announced. Of course, there's no guarantee that T-Mobile cold fetch as high of a premium in a merger deal. But T-Mobile's valuation has risen since Sprint first pursued the company, from about $30 billion to its current $51 billion market cap. That puts T-Mobile in a much stronger position to negotiate. And with its current customer growth and strong network presence, there's no reason why T-Mobile would have to settle for a subpar proposal from any potential merger partners.