According to separate reports from Bloomberg and The Wall Street Journal, Sprint Nextel (NYSE: S) is working up a deal to join forces with T-Mobile USA.
Health tip of the day: Don't hold your breath in anticipation of this deal.
Numerous sticking points would need to be worked out before either Sprint or T-Mobile parent Deutsche Telekom would be ready to offer their John Hancocks. For one, Sprint CEO Dan Hesse would want to run the combined company, which might not please the Germans. There's the ever-present specter of incompatible network technologies on both the 3G and 4G levels, and Sprint is still working out kinks in the acquired Nextel network -- these things aren't easy.
Changing the whole shebang over to the LTE 4G standard might sound like an obvious solution, but then what would become of Sprint's substantial investment in -- and majority ownership of -- WiMAX service provider Clearwire (Nasdaq: CLWR)?
But the juiciest morsel among the chewy knots is valuation. Deutsche Telekom once paid more than $30 billion to acquire VoiceStream Wireless, which then became T-Mobile USA. The company would like to minimize the pain of this difficult investment that led to nothing more than a fourth-place ranking among American wireless providers. That means a deal on the order of at least $20 billion and probably closer to $30 billion, according to the reports' inside sources.
You can see how that could be an issue for Sprint, which is valued at $14 billion today and already carries a $20 billion debt load. Further complicating the matter, Sprint's customer list is about 48% larger than T-Mobile's. That raises difficult questions about Deutsche Telekom's asking price while underscoring Sprint's plans to run the show.
Baking the two together would create a serious challenger to the AT&T (NYSE: T) and Verizon (NYSE: VZ) wireless hegemony, and economies of scale matter a lot in telecommunications. A combination makes too much sense to ignore, but the devil is in the details.
Will Sprint and Deutsche Telekom join forces in time, or will the opportunity pass before they can agree? Let us know what you think in the comments below and add Sprint Nextel to your watchlist to follow future developments.
