Sprint and T-Mobile: A disaster in waiting

Summary:What do you get when you combine one struggling carrier (Sprint) with an innovative but smallish one (T-Mobile)? A wireless train wreck.

What do you get when you combine one struggling carrier (Sprint) with an innovative but smallish one (T-Mobile)? A wireless train wreck.

On Thursday, a Merrill Lynch telecom analyst Graham Ruck pitched an idea that Sprint and T-Mobile's parent Deutsche Telekom should merge amid the wireless price war (Techmeme). The idea is that a merger would better protect T-Mobile and Deutsche could use the strong euro against the dollar to land a bargain.

Logically, the move makes some sense. Price wars do lead to consolidation and Deutsche has currency on its side, but T-Mobile's parent may want to shop elsewhere. The risks are large and the payoff is more girth but little else. Another Merrill Lynch analyst David Janazzo evaluated his European colleague's theory on Friday amid increasing chatter about a T-Mobile-Sprint tie-up.

Among the risks:

Regulators: A Sprint, T-Mobile deal could raise concerns about foreign ownership of a domestic carrier, but that could be resolved, says Janazzo. If we can dilute investors of U.S. financial firms by selling to sovereign wealth funds I can't see selling an ailing Sprint to a German company being a big deal. One hitch: A Sprint-T-Mobile merger would set up three large carriers that could raise prices.

Integration: T-Mobile's 3G network isn't built. Sprint has CDMA and is fiddling with WiMax. Good luck figuring that one out kids. Oh yeah and there's Sprint's Nextel network too.

Churn: Sprint is hemorrhaging customers. In theory, T-Mobile could merge with Sprint and find itself a more distant third place carrier in the time it takes to get regulatory approval.

Simply put, T-Mobile combining with Sprint wouldn't equal a 1+1=3 situation. Instead you'd get 1+1=1.5. And that doesn't make a lot of sense.

Topics: Banking, Mobility, Networking, Telcos, Wi-Fi

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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