T-Mobile and Sprint? Wild-cards abound

T-Mobile is reportedly considering acquiring Sprint in a deal that would create the third largest wireless carrier in the U.S. But there are enough wild-cards to cast doubt on an outright merger.

According to the UK's Telegraph, Deutsche Telekom, parent of T-Mobile, is looking into a Sprint purchase and has recruited investment bankers to study a deal.

If this sounds familiar it is: T-Mobile has been repeatedly rumored to buy Sprint. But you shouldn't get too wound up about a deal. Why? Analysts are somewhat skeptical about the timeline for such a T-Mobile-Sprint merger and note there are multiple technology hurdles. None of these hurdles mean a deal couldn't happen, but there are enough of them to make all parties think twice.

"We still view reports regarding M&A activity surrounding Sprint Nextel with a grain of salt, if for no other reason, than the numerous previous instances of such rumors in recent years," says Stifel Nicolaus analyst Christopher King.

Simply put, A T-Mobile-Sprint merger isn't a slam dunk to happen.

Here's a look at the moving parts:

The technology integration is a killer. T-Mobile operates a GSM network. Sprint has a CDMA and IDEN network. Good luck moving to one platform. Oppenheimer analyst Shaul Eyal writes:

We believe the timeline for consummation of such a transaction would be on the order of a year. Furthermore, assuming a transaction is consummated, changes to network infrastructure would likely would require a substantial amount of planning and work.

But spectrum matters. Chandan Sarkar, an analyst at Auriga, argues that Sprint's wireless spectrum is its most valuable asset. That asset is so valuable that Deutsche Telekom would overlook the technology integration challenges.

The risks would be large. Analysts noted that Verizon and AT&T are likely to take advantage of the distracted management teams at T-Mobile and Sprint to poach more customers.

T-Mobile may not be in a rush. Deutsche Telekom is likely to be the only bidder for Sprint so don't expect any pyrotechnics in the dealmaking. Piper Jaffray analyst Christopher Larsen writes:

We think a combination of the two companies makes sense given the increasingly competitive environment and deteriorating fundamentals of the industry (slowing subscriber growth, voice pricing pressure, etc.), but that a deal would not be free of challenges. We feel a bidding war is unlikely, as we do not expect cable, the only other logical buyer, to get into a war for the assets.

4G would be a wild-card. Sarkar also noted that Deutsche Telekom is likely to bet on long-term evolution (LTE) networks for their next-generation network. What does that mean for Sprint's WiMax plans. That said, T-Mobile needs a 4G network and Sprint could be the ticket.

What's Clearwire's future without Sprint? If T-Mobile-Sprint bets on LTE, Clearwire could lose a major WiMax distribution channel. Larsen adds:

We don't believe the companies would see substantial synergies until they consolidate to one network/technology. Deciding which 4G technology to invest in could be challenging. Deutsche uses LTE in Europe, while Sprint has a majority stake in Clearwire (WiMAX). If the company pursued LTE in the U.S., Clearwire could be sold to cable or abandoned.