Sprint took on some shine Tuesday after news it’s in talks with a pair of cable companies, an alternative from years of predictions that it was headed toward a job-robbing merger with rival T-Mobile US.
A Wall Street Journal report on Monday that said Sprint is in exclusive talks with cable giants Comcast and Charter Communications holds out some hope that Sprint has options aside from a merger with T-Mobile, widely seen as a move that would sap jobs from the Overland Park headquarters where 6,000 people work.
“I’ll just say any opportunity to retain, much less grow jobs, here in Overland Park and on the Sprint campus is nothing short of good news,” said Michael Tracy, chairman of the Overland Park Chamber of Commerce.
If Sprint’s apparent discussions with Comcast and Charter Communications move forward, it’s an indication that Sprint negotiates from more of a position of strength than many thought previously.
Wall Street investors initially greeted the news warmly as Sprint’s share jumped in value by 5.7 percent in early morning trading. Sprint’s shares ended the day with a 2.12 percent increase.
“Sprint isn’t as desperate as many thought, and T-Mobile didn’t have the leverage that most seemed to assume,” analyst Jonathan Chaplin of New Street Research said in a note to clients Tuesday.
A deal with T-Mobile would probably mean shutting down one of the two companies’ wireless networks.
T-Mobile has been racking up millions of new wireless customers in the past four years. Its success lifted it past Sprint to become the nation’s No. 3 carrier by subscriber count. T-Mobile’s network tops Sprint’s in network speed tests, and T-Mobile spent billions of dollars earlier this year to buy more wireless spectrum licenses that will further strengthen its network.
Just last week, a report in the German media had Sprint and T-Mobile putting the final touches on their plans for a merger.
“Everybody was sure that’s a done deal, and they’re looking at who’s taking over,” said William Ho, an industry analyst at 556 Ventures. “That’s not a done deal.”
Executives at both companies have been talking about the value of a merger deal and even the likelihood of talks. Monday’s news makes it look more like positioning than actual deal-making.
On May 10, Sprint Chairman Masasyoshi Son declared T-Mobile a “first priority” in Sprint’s efforts to build its future.
By the start of June, however, Sprint had entered exclusive talks with Comcast and Charter Communications to the exclusion of chats with T-Mobile, at least according to the Journal report.
On May 19, T-Mobile’s finance chief, Braxton Carter, declared Sprint a “huge prize” in the myriad mixture of mergers and deals expected to emerge.
BTIG Research analyst Walter Piecyk told investors Tuesday that it wasn’t clear if Carter knew Sprint was about to strike an agreement with the cable companies. But such knowledge would add some context to comments that boosted the value of Sprint shares.
Piecyk wrote that “a higher Sprint stock price might make it more difficult for Sprint to attract an equity investment from a cable operator.”
Monday’s news also stirred speculation that Sprint was looking elsewhere after the talks with T-Mobile had not gone well.
“The report of exclusive talks between Sprint and Cable likely provide an indication of just how far apart Sprint and T-Mobile may be in any discussions,” said a note Mike McCormack sent to clients at Jefferies.
But last week, even as the Sprint talks with cable companies were underway, Sprint CEO Marcelo Claure praised the benefits of a T-Mobile merger after visiting the White House in an industry discussion about future 5G technology.
Claure’s comments make sense if all of the parties are using public comments to further their positions as the merger dance plays out.
“You want to keep all options open. There’s a PR spin to it,” Ho said.
Merger and deal talks in the wireless industry had been on hold for more than a year before a federal quiet period ended in late April. Although a merger between Sprint and T-Mobile seemed most likely to emerge, analysts were looking at many possible combinations.
The Journal’s report did little to narrow the various plans that Sprint and the cable companies are talking about.
The least likely path would be an outright purchase of Sprint, analysts said.
Cable executives more likely are considering an investment in Sprint’s network that would give them access to sell their own wireless service using an upgraded Sprint network.
Comcast and Charter already have a similar access deal, called an MVNO for mobile virtual network operator, with Verizon. Analyst Mike McCormack at Jefferies said the cable companies may be looking for a better deal and noted that the Verizon deal was struck before unlimited data plans entered the market.
Analysts said the cable talks still would allow for an eventual merger with T-Mobile. It even may become easier to negotiate if the cable companies struck a network sharing deal with Sprint.
Piecyk’s analysis said T-Mobile and Sprint’s merger teams likely have struggled with terms of a merger because Sprint shares already traded at premium prices relative to T-Mobile. Revenue from a network sharing deal with Sprint would add new revenues to the pot.
“To be clear, a cable/MVNO deal with Sprint should not preclude a Sprint/T-Mobile merger and might in fact offer the extra economics needed to entice DT (T-Mobile parent firm Deutsche Telekom) into a deal,” Piecyk wrote.
Chaplin noted that a cable deal has an important edge over the widely anticipated Sprint merger with T-Mobile. Regulators are expected to be skeptical of a merger of two wireless carriers and more likely to approve a cable deal with a wireless operator.
Then, he noted that Comcast and Charter were in these talks together.
“While a single cable company entering into any transaction with Sprint has a strong likelihood of regulatory approval, a joint bid raises questions that add some uncertainty,” Chaplin wrote.