A Sprint Deal With Charter and Comcast Just Makes Sense

The wireless carrier was in a tough spot, but its potential new partners may save it.

Daniel B. Kline
Daniel B. Kline
Jul 5, 2017 at 8:02PM
Technology and Telecom

Sprint (NYSE:S) has backed itself into a corner, but CEO Marcelo Claure may have found a viable way out.

The No. 4 wireless carrier has become an also-ran in the four-company telecom space. It's not the carrier with the best network -- that would by most accounts be Verizon Communications -- nor is it the most customer-friendly, as T-Mobile takes that crown. Sprint does often offer the cheapest unlimited data deal, but doing that has not helped the company compete with T-Mobile as the people's choice or Verizon or AT&T when it comes to established brands.

Sprint has somewhat stopped the bleeding. The company increased its year-over-year postpaid net additions to 930,000 for the full year 2016, more than double the previous year. Still, the company lost $1.2 billion for the year and continued to fall behind its three key rivals.

Because of that, rumors had again begun circulating that the company would try to merge with T-Mobile. Sprint's chairman Masayoshi Son has even publicly said that the company was at least in play.

"Now, we may buy, we may sell, maybe [a] simple merger," Son said during a meeting with investors, according to the Kansas City Star. "There are so many options available, and we are looking into that. We are open for any options," Son said. "We may be dealing with T-Mobile. We may be dealing with a totally different company."

At the time those comments were made in February, T-Mobile seemed like the only option. Now, however, Comcast (NASDAQ:CMCSA) and Charter Communications (NASDAQ:CHTR) have entered the fray. In fact, the two cable companies, which both have designs on becoming wireless players, have entered into an exclusive negotiating period with Sprint, according to The Wall Street Journal.

Sprint's spokesperson

Sprint has been using Verizon's former spokesperson, Paul Marcarelli, in its ads. Image source: Sprint.

What is Sprint doing?

The company has stopped dealing with T-Mobile and begun a two-month negotiating period with Charter and Comcast. A number of ideas are on the table, including a buyout or an investment by the cable companies, though the latter is less probable. Instead, WSJ reports, it's more likely Comcast and Charter would invest in improving Sprint's network in exchange for favorable terms to use it to offer their own branded wireless services.

Both Comcast and Charter have announced plans to market their own wireless service which would work at least partly over their existing Wi-Fi networks. In areas where that won't work, the cable companies already had a deal in place with Verizon to use its network. In theory, a Sprint deal would give Charter and Comcast better terms along with an ownership interest.

Why is this important for Sprint?

T-Mobile, which has added over 1 million subscribers in each of the last 16 quarters, does not need Sprint. That puts the latter in a lousy position when it comes to negotiating a purchase, especially because merging wireless companies, which use different technologies, is not a smooth or simple process and could drive customers to leave.

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Charter and Comcast give Sprint another option. An investment in the wireless carrier's network, as well as fees for the cable companies using that network, could lower expenses while raising revenue.

Even if that does not happen, the possibility of that deal being on the table forces a better offer from T-Mobile if it actually wants Sprint. In addition, the added competition could push another player -- perhaps an overseas wireless carrier looking for a U.S. foothold -- into the game.

Having more than one suitor gives Sprint leverage. Whether it gets sold or partners with Comcast and Charter (or another player), the increased interest drives the price of any deal higher. That's good for the company and its shareholders.