There are strong strategic and financial reasons for combining the No. 3 and No. 4 carriers, but the longer they wait, the less beneficial a deal will be.
Sprint is back to losing money, deal talks with Bellevue-based T-Mobile US are back on, and all is normal in the wireless world again.
That was the first line of a column I wrote back in October; now, less than six short months later, it rings true anew. The two wireless carriers have reportedly rekindled discussions, and even though investors have been through this before, more than once, and have been burned when no deal materialized, that didn’t stop them from buying up both stocks when the news broke on Tuesday afternoon. Sprint, in particular, surged 17 percent on the news, pulling up its shares from a more than 20-month low.
T-Mobile and Sprint are the Ross and Rachel of the business world — they need to just get together already.
I don’t mean that facetiously. There are strong strategic and financial reasons for combining the No. 3 and No. 4 carriers, but the longer they wait, the less beneficial a deal will be.
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They know this. In fact, all that seemed to prevent a merger last time was a power struggle in which neither company’s controlling shareholders wanted to give up their influence. Germany’s Deutsche Telekom controls T-Mobile, while Japan’s SoftBank Group controls Sprint.
Masayoshi Son, the Japanese billionaire behind SoftBank, sees Sprint as part of a self-professed 300-year vision for his empire — a grand plan for long after he’s departed and our cars are the ones driving us on superfast, sophisticated networks. But those are high hopes for Sprint, a carrier that can’t seem to stay out of the red and is still often mocked by consumers for its network service.
Son has long wanted to combine the business with T-Mobile and even seemed willing to go along with a stock-for-stock merger that valued Sprint at or near its market price. But he wasn’t ready to give up control despite the headaches caused by investing in the wireless carrier.
Sprint managed to turn a profit in the three months through June 2017, before turning to desperate offers — such as a year of free service for Verizon Communications defectors — to draw new customers. (It did earn $7.2 billion in the quarter ended December, but 99 percent of that came from tax changes implemented by the government.) Analysts project that Sprint lost money on a net basis in the latest quarter. With $32 billion in net borrowings, the company tends to send most of its operating income back out the door for debt payments.
Meanwhile, T-Mobile’s growth is slowing, as expected. It had a long stretch of impressive customer gains, thanks to a brilliant brand makeover, service improvements and low prices, but now things are at the point where they’re becoming unsustainable.
That will hold even more true if AT&T’s $109 billion acquisition of Time Warner survives a courtroom battle with the Justice Department, which would hand AT&T more power and scale and almost certainly lead Verizon to explore a similar type of vertical merger.
T-Mobile is branching into video entertainment with its recent acquisition of Layer3 TV, a precursor to T-Mobile introducing its own over-the-top TV service.
The carrier has had a proven strategy under CEO John Legere, but I wouldn’t get too excited about yet another TV service being added to an already confusing array of offerings from the leading pay-TV providers and content makers.
And when it comes to T-Mobile and TV, I’ve argued if it wants to get into that business, it would be better off pursuing a merger with Dish Network, the owner of the Sling TV streaming app and a boatload of valuable wireless-spectrum licenses.
Should it go the Sprint merger route, T-Mobile would gain more scale at a time when pricing has gotten fiercely competitive in the mature wireless market.
We all know a deal makes sense. It just comes down to whether Son and Deutsche Telekom can come to an agreement over control, as it always has, and whether the Trump administration will even let a deal through.