More mixed signals about about a possible merger between Sprint Corp. and T-Mobile US Inc. surfaced in analysts’ reports Wednesday.
On one front, T-Mobile may be facing greater pressure to agree to a deal. On another, regulators in Washington may have fired “a shot across the bow” of the merger idea.
The pressure on T-Mobile comes from No. 2 wireless carrier AT&T Inc., according to analyst Adam Ilkowitz at Nomura. In a note to clients, Ilkowitz said an update from the big carrier shows fewer subscribers have been switching to other carriers since the end of March.
It’s a sign, said Ilkowitz, that T-Mobile’s successful campaign for new customers may be weakening.
AT&T has been a favorite target of upstart T-Mobile’s push to lure customers to its network, in part because the companies use similar network technology. Ilkowitz said he expects No. 1 Verizon also is seeing fewer customer departures, which the industry calls churn.
This news, Ilkowitz said, “underlines the rationale” for a Sprint and T-Mobile deal. Overland Park-based Sprint has argued that the two companies, if allowed to merge, would become a larger and stronger rival to the two big carriers.
Ilkowitz said AT&T and Verizon have been protecting their customer counts by responding to the price cuts and other changes that have fueled T-Mobile’s subscriber successes.
Meanwhile, T-Mobile’s price cuts have cut into the amount of cash it takes in just as the four big players get ready to bid against each other for highly sought wireless spectrum to boost their networks.
Washington is set to auction the additional wireless spectrum early next year. These are the licensed airwaves that mobile phones, tablets and other devices use to stream video, download apps and perform the other features that make the devices popular.
Carriers have said the 600 megahertz spectrum in the upcoming auction is particularly attractive because it carries signals deeper into buildings and further before the signals need to be reinforced by another cell tower.
Here’s where the idea of a merger between Sprint and T-Mobile may have hit a new snag, according to analyst Jennifer Fritzsche at Wells Fargo Securities.
Fritzsche pointed to rules that the Federal Communications Commission set for the spectrum auction. One rule sets aside part of the valued 600 megahertz spectrum and excludes the two biggest carriers from bidding. It essentially means Sprint and T-Mobile would be the top contenders for that reserved spectrum.
Fritzsche then dug out the fine print in paragraph 171 of the rules. The FCC’s auction rules essentially assume there are four national carriers, she said in a note to clients.
“If significant changes in the marketplace structure occur or a proposed transaction is filed with the commission in the future affecting the top four nationwide providers and their spectrum holdings, we will revisit our decisions here regarding the reserved spectrum provisions for the 600 megahertz band that we adopt today,” Friztsche‘s note quoted the rules to say.
In her words: “We believe this language is very purposeful and could signal the FCC’s displeasure with the possibility of a Sprint/T-Mobile merger.”
Fritzsche’s legal sources tell her that the FCC basically has told Sprint and T-Mobile that if they ask to merge they’ll be cut out of the bidding on the reserved spectrum, just as AT&T and Verizon will be cut out.
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