Sprint’s merger thoughts shift from ‘not in the cards’ to ‘may be necessary’

Sprint Corp. CEO Marcelo Claure speaks on Thursday, June 4, 2015. “Sprint is turning the corner,” Claure said in the company’s earnings report Tuesday.
Sprint Corp. CEO Marcelo Claure speaks on Thursday, June 4, 2015. “Sprint is turning the corner,” Claure said in the company’s earnings report Tuesday.

A year ago, Sprint’s finance chief declared that a T-Mobile merger was “not in the cards.” On Tuesday, he acknowledged the company is thinking that pairing up “may be necessary to compete.”

Tarek Robbiati, the Overland Park-based wireless carrier’s chief financial officer, did not name names in his public comment. He didn’t need to.

“From a policy perspective, it would seem to make sense that, over the long term, further consolidation among the smaller players may be necessary to compete with the big two,” Robbiati said during a conference call with analysts.

The smaller players would include Sprint and T-Mobile US, which combined would have nearly as many wireless subscribers as either of the industry leaders: Verizon or AT&T.

Robbiati’s comment stands in contrast to remarks he made to investors in January 2016. He said then that Sprint was too busy fixing its own business to consider a deal with any other business.

“Right now, it’s not in the cards and will not be in the cards until we have driven to the right level of operating performance,” Robbiati said then.

His comments Tuesday came as Sprint released its financial results and customer counts from the final months of 2016.

Sprint reported a financial loss of $479 million, smaller than a year ago, and boasted that it had gained more high-revenue phone customers than Verizon and AT&T during the industry’s traditionally busy holiday season.

The merger question came up, as it tends to do, during a session with analysts. Sprint executives typically skip to the next question, and Sprint CEO Marcelo Claure did not weigh in this time.

Robbiati prefaced his comment by noting that there currently is a lot of merger speculation about the broad communications industry.

Talk has soared since Donald Trump’s election victory in November.

Various reports have paired Sprint and T-Mobile, T-Mobile with Dish Network, and even Verizon with Disney. Cable giants Comcast and Charter are listed as potential merger players, most recently linking Charter and Verizon.

Trump’s administration is seen as more likely to support mergers than President Barack Obama’s administration.

President-elect Donald Trump said Tuesday that the Tokyo-based parent company of Sprint Corp. has agreed to invest $50 billion and create 50,000 jobs in the United States. Trump made the remarks with Masayoshi Son, chairman of Sprint and CEO of So

In 2014, Washington regulators effectively persuaded Sprint not to even ask to buy T-Mobile, an objective that Sprint chairman Masayoshi Son has acknowledged he wanted to do.

Son, whose Tokyo-based SoftBank Group owns more than 80 percent of Sprint, has since promised Trump that SoftBank would bring 50,000 jobs to the United States. Claure has said 5,000 of those will be Sprint jobs.

Both pledges were seen widely as an effort to warm up to the nation’s chief elected officer ahead of making a run at merging Sprint and T-Mobile.

Currently, the industry is on hold because of a government auction of wireless licenses it is buying from television stations to resell to wireless carriers. Until it is completed, strategic talks are banned among the bidding players, which include Verizon, AT&T and T-Mobile.

In his comments Tuesday, Robbiati said that these are the “early days” in any consolidation wave and that Sprint is managing itself as a “standalone” business. Still, executives there will “monitor that situation closely,” he said.

Analyst Craig Moffett said Sprint has relatively few merger options, principally T-Mobile, and should be looking for a deal sooner rather than later. T-Mobile’s financial condition and customer gains are much stronger than Sprint’s, which means its value continues to increase.

“With T-Mobile still getting stronger,” Moffett wrote in a note to clients Tuesday, “the incentives for the two companies could not be more different. For Sprint, a deal can’t come soon enough. For T-Mobile, the longer they can wait, the better.”

Sprint’s report Tuesday showed it has made gains, particularly in attracting high-value phone customers.

It added 368,000 phone subscribers who meet credit checks and are billed for their service each month rather than paying in advance. These post-paid subscribers, as the industry calls them, have been the focus of Sprint’s marketing and generate the most revenues for the company.

T-Mobile US had led the industry by adding 933,000 post-paid phone customers in the fourth quarter of 2016. Verizon added 167,000, and AT&T had lost 67,000.

Overall, Sprint said it added 577,000 customers, a total that was held down by its continuing losses of prepaid customers. Sprint shed 501,000 of them in October, November and December. These subscribers generate a bit more than half the revenue each month that Sprint’s post-paid subscribers generate and have been exiting the company for several quarters.

The Sprint network gained 673,000 new users through wholesalers and affiliates, who market wireless service under their own brands.

Sprint ended December with 59.515 million subscribers on its wireless network, down from 60.193 million at the end of September. Sprint’s overall customer count declined because it removed what it called 1.255 million “low-engagement customers” from its rolls during the quarter but did not count that toward its reported quarterly gains and losses.

Claure did address one recent Sprint acquisition – its 33 percent stake in music-streaming service Tidal. He acknowledged it was Sprint’s first foray into owning content that mobile subscribers would use their wireless devices to enjoy.

AT&T is buying Time Warner Inc., Verizon is working on its Yahoo deal and already bought AOL. By comparison, Sprint’s Tidal stake is modest.

Claure said it still does the job by allowing Sprint to test how well owning content helps attract and keep wireless subscribers.

“This allows us to test the effect,” Claure said, “without spending billions like our competitors.”

In reporting its financial results Tuesday, Sprint said its quarterly loss of $479 million equaled 12 cents a share. That was down from a loss of $836 million, or 21 cents a share, a year ago.

Sprint said it made a profit operating its business, earning $311 million before interest costs and other expenses led to the net loss.

Revenues were $8.5 billion in the three months, up more than 5 percent from a year ago. Its earnings have benefited from the increase in revenues and a drop in expenses. Sprint said it has cut $1.6 billion in expenses with expectations of reaching $2 billion in cuts by the end of March.

The financial report covers the third quarter of Sprint’s fiscal year that began April 1 and ends March 31 this year.

Mark Davis: 816-234-4372, @mdkcstar