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Business & Tech
Thu January 9, 2014
Sprint Eyes Difficult Merger With T-Mobile
Sprint Corp., based in Overland Park, Kan., has been losing subscribers to bigger rivals for years. One way to reverse that trend would be to merge with another carrier, and Sprint is reportedly eyeing the fourth largest wireless provider, T-Mobile, for acquisition.
When the Wall Street Journal published a report, citing unnamed sources, that Sprint was getting ready to try to buy T-Mobile, lots of industry analysts treated it as old news.
“There’s been speculation about Sprint and T-Mobile merging for years,” says Walt Piecyk, an analyst with BTIG, LLC in New York. “So this is only the latest of a long line of speculative reports, thinking that these two companies will merge."
That makes sense from a business point of view. For one thing, Sprint and T-Mobile have coverage areas that are relatively complementary. They both offer unlimited data plans, and Sprint and T-Mobile combined would still be a lot smaller than either AT&T or Verizon the two colossal companies that Piecyk says have dominated the wireless industry for years.
In the mean time, Sprint has been bleeding customers, and until recent months, so was T-Mobile.
Jennifer Fritzsche, an analyst who works for Wells Fargo, says both companies need to grow to compete with their giant, and more efficient rivals.
“Size matters, says Fritzsche. “The model is very much a fixed cost model. So the more customers you have, the better the margins."
The fastest way for Sprint to gain the new customers it needs would be to buy T-Mobile, and all its subscribers. Technically, Sprint’s parent company SoftBank, which is based in Japan, would buy a big stake in T-Mobile from its owner Deutsche Telecom.
Fritzsche says, the money, reportedly about $20 billion, is there.
“I believe the stories that Sprint has been lining up the financing and so forth, but I think it’s going to be very hard to get it done,” Fritzsche says.
Fritzsche thinks regulators at the Federal Communications Commission and the Department of Justice would block the deal as anti-competitive.
Burt Foer, president of the American Anti-Trust Institute says he hopes she’s right.
“The issue really is, if I don’t like the service I’m getting, or the price I’m getting from AT&T or Verizon, where else can I turn? And it’s better to have two options, than one,” says Foer.
And, he says there’s another issue with mergers.
“Very few mergers that don’t result in substantial job losses,” says Foer.
“A merger is justified in terms of the efficiencies that it’s going to provide, and most of the time those efficiencies have to do with eliminating jobs. They never say that in advance, by the way."
Foer says if Sprint does try to move forward with the acquisition, it might evoke something in anti-trust law called "failing company doctrine."
“But the test for what’s failing is pretty strict,” says Foer. “You’ve got to be on the very verge of bankruptcy, and have no other choices. That’s not the situation here.”
In fact, Sprint, thanks to its parent company SoftBank, is currently pretty well off - spending on technology to make its system much faster, and more competitive. T-Mobile is also doing well, drawing millions of new customers with innovative contracts and deals.
In fact, T-Mobile has become a serious enough threat to AT&T that the much larger company is offering hundreds of dollars in incentives for customers to drop T-Mobile. That’s competition!
Regulators love it, and, absent some surprises, many think they’re unlikely to approve a deal that might dampen what’s happening in the wireless industry now.
Business & Tech