Should T-Mobile Buy Sprint? - InformationWeek

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3/6/2008
03:47 PM
Stephen Wellman
Stephen Wellman
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Should T-Mobile Buy Sprint?

The latest rumor sweeping the wireless world is that T-Mobile's parent, Deutsche Telekom, may acquire troubled U.S. carrier Sprint. Is this really such a good idea?

The latest rumor sweeping the wireless world is that T-Mobile's parent, Deutsche Telekom, may acquire troubled U.S. carrier Sprint. Is this really such a good idea?First let's take a look at the rumor:

Deutsche Telekom, owner of T-Mobile and the world's sixth largest phone company, may consider acquiring Overland Park-based Sprint to block a price war in the mobile phone industry, analysts for Merrill Lynch said today.

The Wall Street firm said Sprint's operational problems and shaky position in the U.S. wireless industry may force the company to cut prices even further to attract customers.

"In such a price war scenario, we think T-Mobile would face the most pressure, and Deutshe Telecom would see the increased urgency to drive market repair," according to the firm's report.

While DT may see a fire sale bargain in Sprint -- the U.S. carrier is currently trading around $7 a share and the U.S. dollar is weak compared with the euro -- I'm not sure this is the potentially low-cost deal it might appear to be. Unless DT thinks this is the best way for T-Mobile to get more spectrum in the United States, and even then, those licenses will come with a ton of baggage.

Sprint is still recovering from its botched merger with Nextel. Sprint isn't in a great competitive position in the U.S. market, especially compared with T-Mobile, which has been able to leverage its low-cost service to DT's financial benefit.

If T-Mobile suddenly has to deal with Sprint's legacy issues, the carrier could be in for a bumpy ride. AT&T and Verizon Wireless are much better prepared to compete for the U.S. market than a merged Sprint/T-Mobile operation.

In fact, I can't really see what T-Mobile would gain, other than more spectrum. The carrier would have to manage not two, but three different network standards -- Sprint's 3G CDMA network, the legacy Nextel iDEN system, and its own GSM/EDGE network. And T-Mobile would have to do something with Sprint's WiMax operation, XHOM.

As it currently stands, T-Mobile is running a profitable operation (Warning: PDF behind link) and once it finally rolls out 3G, it will be in an even better position. But if T-Mobile suddenly has to manage the mess that is Sprint, things could get ugly fast.

What do you think? Is there any substance to the DT/Sprint rumors? And if so, why?

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