According to a rumor coming out of the Wall Street Journal, Sprint is looking to acquire T-Mobile USA from Deutsche Telecom. As many of you remember AT&T originally had tried to acquire T-Mobile and we outlined why the merger was a bad idea to begin with, even with AT&T trying to convince the Obama administration, DoJ and FCC that it would be good. Well, it looks like T-Mobile is a take-over target once again, except this time, I don’t think that Sprint will have nearly the power over T-Mobile that they would have had two years ago. Right now, T-Mobile is on a roll and it doesn’t seem to be stopping any time soon. If Sprint wants to launch a bid for T-Mobile it is going to have to be for a lot of money, the WSJ claims $20 Billion. I suspect that figure will have to be more considering that AT&T wanted to pay $39 billion and T-Mobile’s parent company, Deutsche Telecom agreed to those terms, but with a few caveats, namely the spectrum and $2 billion in cash as a security policy if the deal went south, and it did.
Now, T-Mobile is arguably in a much better position right now than they were at the time of the AT&T acquisition two years ago and I suspect that $20 is nowhere near enough money for Sprint to acquire T-Mobile. Currently, the company has a market cap of $20 billion, but I suspect that T-Mobile is in a competitive enough position that they could easily demand a premium over the price of the company’s market cap right now. Especially when you look at the fact that Sprint has 53 million subscribers while T-Mobile has 43 million, and every quarter T-Mobile is closing the gap on Sprint, which may be worrying them as a company.
Sprint as some of you already know, is actually a subsidiary of SoftBank, the Japanese telecom company that has successful deployed countless LTE networks and is considered one of the global leaders of telecommunications. That transaction resulted in SoftBank paying $20 billion for Sprint. Keep in mind, that was only a year ago, and the actualy deal didn’t actually close until this year. Surely a T-Mobile acquisition is far too soon after the purchase by SoftBank to actually be a reasonable decision. Not to mention, if acquired, T-Mobile and Sprint together would come much closer to competing with AT&T and Verizon, however, we would no longer have a ‘big 4’ carrier system but rather a 3 carrier oligopoly. Oligopolies are no better for consumers than monopolies and things like T-Mobile’s new uncarrier strategy at the helm of CEO John Legere would even be possible if the AT&T deal had gone south.
Putting aside our absolute distaste for a 3 carrier system and the fact that Sprint should be looking for other ways to grow their customer base, a combined Sprint and T-Mobile carrier would have huge compatibility problems in terms of 3G technology since Sprint is CDMA and T-Mobile is a GSM carrier. It would take years to actually see the real benefits of combining networks and infrastructure and I’m not really convinced that T-Mobile customers would really stand to benefit at all. Sure, Sprint customers would probably experience much better coverage and speeds than they’re currently getting now, but I don’t think it will elevate their experience anywhere near enough to be considered ‘improved’. Not to mention, Sprint really needs to fix all of their own internal problems in terms of infrastructure before they actually start trying to go out and buy their biggest competitor.
As if all of that wasn’t enough, let’s not forget that apparently when acquiring T-Mobile things don’t seem to go very well. I somehow have a feeling that any official announcement of a T-Mobile acquisition by Sprint will be looked at with very heavy scrutiny, perhaps even more than the AT&T deal since it would remove a competitive carrier from the landscape and reduce competition significantly. Not to mention the fact that the T-Mobile CEO would probably not go down without a fight and could even demand that he become the CEO of the new company. In addition to that, I don’t see Sprint being a competitive carrier unless they were to adopt all of T-Mobile’s policies, which have gained them quite a bit of respect and attention from the rest of the industry. As if all of that wasn’t enough, I also believe that if Sprint were to buy T-Mobile, they would pull a Cingular and buy the smaller company and use their more respected name. I think that Sprint’s brand has been so tarnished by people that have left the carrier that I don’t think people would ever consider coming back, even if it was a completely different company.
Taking all of the above into consideration, there are a lot of roadblocks for such a merger/acquisition and as a result of that, I really don’t see such a deal going down. Especially considering T-Mobile’s past regulatory history with mergers and acquisitions.