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Tuesday, September 15, 2009

T-Mobile Eyes Sprint Merger To Battle AT&T, Verizon

T-Mobile is reported planning to merge with Sprint Nextel to battle AT&T and Verizon Wireless in the U.S. Combined, T-Mobile and Sprint would battle AT&T for second place in the wireless market. While Sprint's assets are attractive, an analyst said the differing technologies used by Sprint and T-Mobile would create "a mess."

T-Mobile plans to merge with Sprint Nextel to take on AT&T and Verizon Wireless in the U.S., according to Monday's The Daily Telegraph. The rumors come on the heels of a T-Mobile-Orange merger in the United Kingdom.
The Telegraph is reporting that T-Mobile's parent, Deutsche Telekom AG, could submit a bid for Sprint within the next few weeks. Sprint's current market value is $10.8 billion with debt of $21 billion. Sprint shares climbed 10 percent Monday in the wake of the reports .

Sprint is the third-largest U.S. wireless carrier behind Verizon with 80 million subscribers and AT&T with 78 million subscribers. T-Mobile is the fourth-largest. If Sprint and T-Mobile merged, they would battle with AT&T for second place.

Musical Networks

Such a merger would have economies of scale in terms of gross subscriber numbers, but not in terms of networking technology, according to Avi Greengart, an analyst at Current Analysis. That's because the two companies promote multiple wireless standards.

Sprint's Nextel brand phones run on the iDEN network while Sprint-branded phones run on CDMA. Meanwhile, Sprint is promoting Wi-MAX for its 4G agreement with Clearwire. T-Mobile uses GSM for 2G and GSM in the 1700 band, which is fairly unique globally, for 3G.

"If T-Mobile acquired Sprint, they'd have a tremendous amount of spectrum assets, but they'd have them all over the place being used with lots of different interface technologies," Greengart said. "Figuring out strategically which ones to keep and which ones to ditch and how to get from point A to point B would be a mess."

According to Zacks Investment Research, T-Mobile's larger competitors deliver services more cost-effectively. The result is that T-Mobile is losing market share. T-Mobile had 15 percent market share in 2007. That declined to about 12 percent at the end of 2008.

Meanwhile, Sprint has struggles of its own in the face of price competition. However, Sprint just unveiled a new pricing model that analysts are betting could help stem the tide of customer defections. Sprint's new model offers unlimited mobile-to-mobile calling from the Sprint network to any wireless phone on any U.S. wireless carrier at any time.

Wireless Industry Consolidation

With a combined market reach of 78 million, analysts agree that a T-Mobile-Sprint tie-up would create a strong AT&T challenger from a numbers perspective. But the network-integration issues could stall any immediate competitive threat.

"It would not help Sprint compete against AT&T and Verizon in the short term," Greengart said. "They'd have so many short-term integration issues that it would be a challenge. But the spectrum assets make it attractive."

Analysts expect to see consolidation in the wireless industry. T-Mobile and Orange are combining to form a wireless powerhouse in the United Kingdom. The companies announced a 50-50 joint-venture company last week that will create the U.K.'s largest mobile operator.

By Jennifer LeClaire

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