Sprint and T-Mobile: A disaster in waiting

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.

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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

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7 comments
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  • NO MORE MERGERS

    As of late, almost every merger in the last 5 years hasn't made sense, nor have many been successful. While on the other hand, we do look at IBM spinning off their PC division and watch them fly with it.

    Sprint spun off Embarq and they appear to be doing better than their parent company.

    I do think I see a pattern here. Smaller usually operates faster while larger means that more approvals have to be signed before anything can get done.

    Anyone else see this?
    nucrash
  • Sprint and T-Mobile

    Sprint is the only provider that is still using CDMA. T-Mobile is only good where they have a tower, otherwise you are out of luck. Mix them both and you just have the same crappy service with a new name.
    wackoae
    • Huh?

      Sprint is the only provider with CDMA if you remove the largest cell phone provider in the U.S. from the equation -- Verizon (which uses CDMA) Duh.
      mperkinsky
  • Graham Ruck is my hero

    I want to be a Wall Street analyst when I grow up so I can speculate wildly on things that'll never happen. ;)

    Seriously, a struggling (albeit large) CDMA network still painfully trying to digest its previous acquisition of Nextel (which for the record is finally going great in my metro area as the coverage has become spectacular over the last 6-8 months) THEN having to merge with a small GSM provider with no 3G - all the while leading the charge into Wimax.

    You know, now that I write it out, it's such a natural fit. I don't know why we didn't see this before.
    RustyShackleford
  • RE: Sprint and T-Mobile: A disaster in waiting

    <cite>you???d get 1+1=1.5</cite>

    The only reason this makes sense is for Sprint to realize that
    they're running themselves into the ground by not being able
    to satisfy their customer base. Any purchaser -- with the
    <b>possible</b> exception of Verizon -- would have to scrap
    most of the Sprint & Nextel infrastructure (including cust
    service!) and basically buy the customer list and spectrum.

    And you know what? That's probably the best that Sprint could
    get, and whatever purchase price would reflect it.

    I'm not much of a bottom-fisher at heart, but, in your
    language, it'd be <B>possible</B> for T-Mo to see this as a
    deal of

    1 + 0.25 = 1.75.
    WaltFrench@...
    • Satisfied Sprint Customer

      I have Sprint, and it works very well for me. Cheapest plans, fast network, good customer service (IMHO). Not sure why so many people are leaving Sprint. Maybe my happiness with the company has to do with my location. I do know that I would not be happy having T-mobile again. Switched to Sprint from T-slobile for a cheaper, faster plan, and a better phone.
      jools68
  • RE: Sprint and T-Mobile: A disaster in waiting

    I will definitley cancel my contract with sprint if acquired by T-mobile. They have no service and cheap plans because their service sucks. Sprint has service more towers, the best phones, and decent prices... T-mobile is just trying to make that lame company keep it's customers. How many customers in a year do they lose due to bad service and the sidekick that always breaks? A disaster in the making....
    SprintCustomer