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9/21/2007
06:34 PM
Richard Martin
Richard Martin
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Will Brits Buy Sprint?

Sprint Nextel shares closed up almost 4% today, fueled by rumors that the No. 3 U.S. wireless carrier could be acquired by U.K. fixed-line operator BT Group. Normally, such Internet rumors are worth the paper they're printed on - and Sprint has been the subject of takeover rumors fo

Sprint Nextel shares closed up almost 4% today, fueled by rumors that the No. 3 U.S. wireless carrier could be acquired by U.K. fixed-line operator BT Group. Normally, such Internet rumors are worth the paper they're printed on - and Sprint has been the subject of takeover rumors for months. This scenario, however, actually could make sense.The reasons for Sprint to seek a buyer have been clear for some time: it's the third horse in a two-horse race, behind AT&T and Verizon Wireless, and it's falling further behind in subscriber growth. Its bold move to invest billions in a WiMax network notwithstanding, "The simple fact of the matter is this company is in some serious trouble," wrote Eric Buscemi on Bloggingstocks last week (calling for Verizon to buy its smaller rival). The usual suspect to buy Sprint is cable giant Comcast.

So why would BT want to acquire a struggling U.S. wireless carrier? For one thing, though it operates as an MVNO selling BT-branded mobile services over the Vodafone network, BT has long been considered as in need of a mobile play to fund its future growth, as its core landline business plateaus. (Only a year ago there was speculation that Vodafone itself might acquire BT.) A trans-Atlantic play might actually make sense for the U.K. telco, which in July reported a 31% increase in first-quarter profits from the same period a year ago.

Second, Sprint and BT's businesses align in some intriguing ways. Both have staked their future not on voice calls but on broadband Internet connections, including significant investments in WiMax. BT was reported trialing WiMax networks in rural locales as far back as 2004, and Sprint has committed around $5 billion to building out a nationwide WiMax network in the next few years. BT added half-a-million customers to its broadband subscriber rolls in the most recent quarter, for a total of 11.2 million. And the relatively low penetration of broadband in the U.S. must be appealing to BT executives, who will face market saturation in the U.K. in coming years.

Sprint's debt-to-earnings ratio is relatively low, and its shares have been depressed for a year, making it a more attractive purchase for BT, which has a market cap of $51.1 billion.

The primary objection to a BT-Sprint combination is that Sprint, unlike European and U.K. carriers, uses CDMA cellular networking technology. Vodafone (and thus BT Mobile) operates over GSM networks. That barrier loses some some height, however, when you note that Sprint has begun releasing multi-band devices like the BlackBerry 8830, which has both CDMA and GSM capability built-in.

One more item of note: Wall Street, which often punishes the purported acquirer in such deal rumors, is not clobbering BT: the company's shares also climbed slightly today on the New York Stock Exchange.

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