Breaking News

Sprint executive echoes T-Mobile’s merger message

Updated: 2013-09-27T03:55:24Z

By MARK DAVIS

The Kansas City Star

Sprint plus T-Mobile. Is it meant to be?

Senior executives at each company this week rekindled the never-say-die idea that the nation’s third- and fourth-largest wireless companies might yet merge.

Both spoke at an investor conference in New York though neither said anything about merger talks actually being held.

It started Wednesday with T-Mobile’s top financial officer calling a merger with Sprint the “logical ultimate combination,” according to Reuters.

Together, Sprint and T-Mobile would be nearly as big as Verizon or AT&T based on the number of subscribers each has. And that would make the wireless market more competitive, according to accounts of the comments made by T-Mobile’s Braxton Carter.

Sprint’s own top financial executive echoed the sentiment Thursday without mentioning names.

“No doubt in my mind,” Sprint’s Joe Euteneuer said, signaling that three comparably sized national companies would provide more competition than the existing four, according to an account noted by equity analyst Jennifer Fritzsche at Wells Fargo.

Shares of Sprint and T-Mobile each got a temporary bump but didn’t react as if investors believed a deal was in the works.

Sprint shares were flat Wednesday and gained 11 cents Thursday, closing at $6.30. T-Mobile added 68 cents over the two days, finishing Thursday at $26.12.

If a deal occurred, it probably wouldn’t come soon, said Jeffrey Silva, an industry analyst at Medley Global Advisors in Washington.

Both companies just wrapped up big deals, pushing them through the gauntlets required to reach approval both on Wall Street and in Washington.

Sprint bought its wireless network partner Clearwire and sold 78 percent of itself to Tokyo-based SoftBank Corp. T-Mobile acquired the No. 5 wireless company MetroPCS.

It’s awfully early to come back to the market and to regulators with another big merger idea, Silva said.

That doesn’t mean the two executives were just playing games. An eventual merger may be on their minds.

Sprint and T-Mobile are spending heavily to build high-speed wireless networks using LTE, or Long Term Evolution, technology. Verizon’s LTE network is already done, and AT&T’s is getting close.

The shared problem at Sprint and T-Mobile is a shortage of subscribers paying monthly bills to cover those big-dollar network investments. Verizon and AT&T have a lot more checks coming in from customers.

Even if Sprint and T-Mobile bring in enough to pay for their networks, they still won’t be able to keep up financially with Verizon and AT&T.

Nor is either smaller carrier likely to gain enough scale alone.

Nearly all potential wireless phone customers are already spoken for. Customers may shuffle back and forth among the four big carriers, but a game-changing reshuffling of subscribers is not in the cards.

Combined as one, however, Sprint and T-Mobile would have about 106 million subscribers, compared with 118 million at Verizon and 113 million at AT&T, according to estimates from Strategy Analytics reported by Fierce Wireless.

So, Silva argued, this week’s merger chatter addressed two audiences.

First, Carter and Euteneuer may well have been telling the investment community to stay tuned. Silva suggested they were, in effect, saying: Even if you don’t like our current plans, we’ve got another “end game” in mind, namely a merger between Sprint and T-Mobile.

The second audience was in Washington.

Regulators already stopped a proposed merger between T-Mobile and AT&T. Their $39 billion deal was blocked two years ago because it would hurt competition.

Sure enough, feisty No. 4 T-Mobile remained independent and this year launched its faster new-phone upgrade policy called Jump. It has helped T-Mobile attract more customers, a sign of competition in the market. The three other carriers announced their own versions of quicker upgrade plans.

A deal between Sprint and T-Mobile also could face a regulatory challenge. Washington has balked before at second-tier mergers within an industry for competitive reasons.

For example, H&R Block tried to buy its small tax preparation software rival TaxAct in 2011. Even after that deal, Block would have paled in comparison to Intuit, whose TurboTax accounted for about 60 percent of the digital tax preparation business.

Still, Washington said no.

Silva’s take is that this week’s commentary by T-Mobile and Sprint may have been an early warning to regulators. A merger request may not come your way soon, but it’s coming all the same.

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

Deal Saver Subscribe today!

Comments

The Kansas City Star is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere on the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

The Kansas City Star uses Facebook's commenting system. You need to log in with a Facebook account in order to comment. If you have questions about commenting with your Facebook account, click here