Sprint drops T-Mobile merger, easing employee worries but raising doubts about future

5 things to know about Sprint and T-Mobile

Sprint and T-Mobile reportedly are again talking about merging. Video originally published in November 2017.
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Sprint and T-Mobile reportedly are again talking about merging. Video originally published in November 2017.

Four years of on-again, off-again efforts to merge wireless rivals Sprint and T-Mobile collapsed over the weekend, offering short-term job relief to 6,000 Kansas City area employees but casting doubt over the company’s future.

Sprint and T-Mobile officially ended their final efforts in Tokyo Friday evening. They issued a joint statement on Saturday, saying they were “unable to find mutually agreeable terms.”

Their failure means shareholders of the two companies gave up $30 billion or more in cost savings that their managements had expected a merger to generate. One combined wireless company would have needed to invest less in its network than the two competing companies spend separately.

A combined carrier would have needed fewer employees than the 78,000 Sprint and T-Mobile employ now, and cuts would have likely hit many employees at Overland Park-based Sprint. A merger was expected to put T-Mobile’s executives in charge, given their success in turning that company into the fastest growing U.S. wireless carrier.

Combining the two also would have created a larger rival with enough subscribers to compete on a more equal footing against industry leaders Verizon and AT&T.

Saturday’s news helps secure Sprint’s standing as one of the largest local employers. It also helps preserve the business Sprint does with local vendors and suppliers and the contributions to charity and community Sprint’s employees and corporate coffers provide.

But with Sprint gaining none of the expected benefits from a T-Mobile merger, Saturday’s news raises questions about the company’s strategy and its ability to compete on its own.

Absent a merger, for example, Sprint now faces a highly competitive marketplace as the smallest national player and with a more aggressive rival in T-Mobile.

“If they’re not going to acquire Sprint’s subscribers through an acquisition or merger, they just need to take them,” said Berge Ayvazian, an industry consultant at Wireless 20/20.

Sprint did not provide information about its plans now.

A merger had been central to Sprint Chairman Masayoshi Son’s plans since shortly after he acquired control of Sprint in 2013. Son heads Tokyo-based SoftBank Group Corp., which owns more than 80 percent of Sprint.

Son first pursued T-Mobile in early 2014 but dropped those efforts when it became clear federal regulators would not approve a merger.

Since then, Sprint has fallen behind T-Mobile.

T-Mobile grew from fewer than 53 million subscribers at that time to pass Sprint and become the nation’s third largest wireless carrier with 70.7 million subscribers. Sprint has declined by about 1 million subscribers, down to 54 million now.

As T-Mobile embarked on its growth spurt in 2014, Sprint changed its top management, undertook a massive cost-cutting program and endured rounds of layoffs. Analysts say Sprint also failed to invest adequately in its wireless network, even as T-Mobile expanded its network and data speeds.

It’s unclear how much of a shake-up Sprint will undergo with its second failure to engineer a T-Mobile merger. Many are focusing on its network strategy as a likely target for change.

“They need to spend (more) money on the network,” said William Ho, an analyst at 556 Ventures LLC.

Ho said Sprint needs to improve its network and the network’s reputation among consumers if it is going to be more successful in stealing wireless customers from other carriers. Sprint has relied heavily on price discounts to attract customers but with little success changing the company’s standing in the marketplace.

A management shake-up also may be in the cards, Ho said.

SoftBank installed current Sprint CEO Marcelo Claure in August 2014 after dropping the first effort to merge with T-Mobile. Claure had built a global $10 billion wireless phone distribution business in Miami, but he lacked wireless carrier experience before joining Sprint.

Claure recently joined the board of directors at SoftBank, which had acquired Claure’s Miami business Brightstar when he took the helm at Sprint.

Other candidates for a merger with Sprint may exist.

SoftBank previously approached cable company Charter Communications about a merger, but it was rebuffed. Analysts also have speculated about Comcast seeking to buy or merge with a wireless carrier. And satellite TV business Dish Network owns airwave licenses needed for a wireless network but has no network to deploy them.

The Kansas City area would be expected to lose fewer jobs under mergers with any of these, compared with a T-Mobile merger.

“We support Sprint’s ownership and management in efforts to secure the strongest future and competitive advantage possible for the company,” Tracey Osborne, president of the Overland Park Chamber of Commerce, said Saturday. “We’re fortunate to have Sprint’s long-standing support of our community’s civic and philanthropic priorities. Most importantly, we are blessed to have their dedicated and highly skilled workforce throughout our region as Sprint’s strongest asset. We look forward to working with Sprint’s management team in the coming days regarding the next phase of this development.”

In Saturday’s joint announcement, Claure said that “while we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination. However, we have agreed that it is best to move forward on our own. We know we have significant assets, including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”

On Monday, Nikkei Asian Review reported that merger talks between Sprint’s SoftBank and T-Mobile’s largest owner, Deutsche Telekom, were on the verge of unraveling.

The latest merger negotiations had broken down over SoftBank’s desire to maintain control of Sprint, which it considers a strategic asset, instead of ceding control to Deutsche Telekom. SoftBank sees wireless services playing an expanding role in consumers’ lives with the emergence of faster data speeds from 5G services.

John Legere, president and CEO of T-Mobile US Inc., added in the joint statement, “The prospect of combining with Sprint has been compelling for a variety of reasons, including the potential to create significant benefits for consumers and value for shareholders. However, we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile’s shareholders compared to our outstanding stand-alone performance and track record.”

A federal ban on merger talks in the telecom industry ended late in April which might mean a merger between Sprint and T-Mobile. This video includes footage from Sprint and photos from Bloomberg Gadfly and Bloomberg.