Give Sprint (S) CEO Marcelo Claure credit for stopping the bleeding. His efforts have at least stopped his company's steady decline in a highly competitive battle with low-price rival T-Mobile (TMUS -0.02%), as well as bigger players Verizon (VZ -0.85%) and AT&T (T -0.92%).
The problem is that despite Claure's strong efforts, Sprint remains the number four wireless carrier. It's also a company without a clear identity, as T-Mobile, under charismatic CEO John Legere, has already staked out the pro-customer space.
That leaves Sprint in a perilous position. It has had to heavily discount in order to gain customers, and that's not a sustainable long-term strategy. In addition, the company faces significant capital spending requirements in order to keep pace with its rivals.
Sprint uses former Verizon spokesperson Paul Marcarelli in its ads. Image source: Sprint.
Where does Sprint stand now?
Using low prices and a message that all wireless networks are pretty much the same, Sprint has posted ten consecutive quarters of postpaid net customer additions. It has also reversed its fortunes in the prepaid space, adding 63,00 in the third quarter after losing 460,000 in the same period a year ago.
In addition to its customer gains, Sprint has also moved from losses to, perhaps, profitability. The company has raised its full-year earnings predictions from breakeven to between $500 and $700 million.
"This momentum, along with a continued focus on the cost structure, is driving improvements in profitability metrics and adjusted free cash flow," said Claure in the earnings release.
What's next for Sprint?
Sprint and T-Mobile have begun discussing a merger for the third time. The first deal fell apart when federal regulators made it clear they would not accept any deal that reduced the number of wireless carriers in the United States. That, however, was back in 2014, and it's possible that a Republican-controlled government may not feel the same way.
The likelihood that a merger would be at least considered (though President Donald Trump is a wild card) brought the two companies back together in 2017. Those talks fell apart when T-Mobile's controlling owner, Deutsche Telekom, and Sprint's controlling owner, Softbank, could not agree on control issues.
Now, while neither company has spoken about the new talks, a deal seems likely because nothing has changed. Sprint is entering the talks from a position of weakness. T-Mobile does not need a deal, but a merger does make sense for both companies.
Will a deal happen?
While it's hard to predict the actions of these two companies, which get together and break up like a romantic pair on a sitcom, it's sort of now or never to make a deal. With a potential change in control of at least one chamber of Congress in 2018, a deal will be a lot easier now than it might be post-November.
Of course, it's unlikely a merger gets approved that fast, but the two companies could make a deal with regulators to make some concessions. That won't be easy, but it's a clearer path than in the future under a less merger-friendly government.
Where will Sprint be in a year?
Most likely, Sprint will be part of T-Mobile, with Legere serving as CEO. That gives the two companies the scale needed to compete with AT&T and Verizon. If that does not happen, however, it seems likely that the company will make a deal with another player. That could mean a cable company, or even DISH Network.
Sprint needs scale to succeed. A T-Mobile merger makes the most sense, but a partner with a large customer base where wireless service could be added in a bundle would do if no other option exists.
