Sprint, T-Mobile merger talks spurred by network sharing needs

Deutsche Telekom's T-Mobile and Sprint are reportedly talking about merging---again. However, this time the deal may make a little more sense. Telecom executives have been talking non-stop about Sprint and T-Mobile somehow sharing networks to better compete with Verizon Wireless and AT&T.

Bloomberg reports that talks about a T-Mobile-Sprint merger are "on and off." For its part, Deutsche Telekom said all options are open with T-Mobile, which recently reported lackluster fourth quarter earnings.

So why should these Sprint-T-Mobile talks be any different than in previous years? Network sharing has become a big topic in the wireless space. Sprint has a network conundrum. It relies on Clearwire for 4G services via WiMax, but is pondering a move to Long-Term Evolution. T-Mobile runs on GSM, but ultimately plans to move to LTE. Both Sprint and T-Mobile need more bulk and spectrum to compete with Verizon Wireless and AT&T.

At first, Sprint and T-Mobile would be a network nightmare with multiple standards. The path forward would be LTE. Sprint's "Network Vision" roadmap points to a flexible network. Steve Elfman, Sprint's president of network operations and wholesale, said last week:

The flexibility in the technology, the multimodal technology, is radioheads at the top of the tower and base stations allowing us to put cards and really software-defined radios that can handle for us CMDA, LTE, WiMAX and others if we so choose. And as I said, with this type of technology, it really enables the opportunity for active network sharing, if we get into those kind of opportunities, rather than simply a passive sharing, where somebody just shares real estate as opposed to base stations.

Sounds like T-Mobile might be a match for this network sharing right?

Analysts have also noted that Sprint is considering a network sharing arrangement with LightSquared, which would contribute spectrum and cash in exchange for capacity on Sprint's network. Macquarie Research analyst Kevin Smithen noted that the most likely scenario would be for Sprint to buy out Clearwire and then overlay LTE.

Add into the mix that T-Mobile may buy Clearwire capacity. If T-Mobile and Clearwire teamed up, sharing a network with Sprint would presumably be easier.

Given all of these moving parts, it's not surprising that Sprint and T-Mobile are talking merger. The reality: A Sprint-T-Mobile combination would be incredibly messy in the short run. And rest assured Verizon and AT&T would market heavily against a network sharing deal or outright merger.

On Monday, Credit Suisse analyst Jonathan Chaplin asked Verizon CTO Tony Melone about a network sharing deal with Sprint, T-Mobile, LightSquared or Clearwire. Here's the exchange:

Chaplin:

There's been a lot of talk recently, just in the last few weeks, about network sharing, the prospect of Sprint getting into a network sharing deal with LightSquared or T-Mobile or Clearwire. Two questions on that -- do you think a structure like this could work in the US? And would you be interested in sharing your network with another carrier?

Melone:

I think no and no is as simple as I can put it. I really think that spectrum sharing is an interesting concept, or spectrum and network sharing is an interesting concept in theory. I don't think you have to look very far to see evidence that very, very few examples of where that has been effective for people. And where it has, it has been an environment where essentially the network is irrelevant to the value proposition. And we at Verizon feel like the network is at the core of the value proposition, so we don't see that in our future. And again, Clearwire and Sprint and what you've seen there -- there's plenty evidence to suggest it's very, very hard even for two players to coordinate, let alone three or four or five.

Obviously, Melone is a bit biased with his take. But he has a point. A network sharing deal---or merger---between T-Mobile and Sprint mean there will be a lot of network logistics complicating things.