So the engagement between Sprint and T-Mobile USA is off again, and until the next time they dance around one another, Sprint is focusing on the cablecos. It will be supporting an MVNO-based mobile launch by Altice, even as rumors swirl that its owner, Softbank, will seek an alternative merger plan, with Altice’s rival Charter Communications (whose own MVNO is powered by Verizon).
The proposed merger would have created a powerful third player of a similar size to AT&T and Verizon, assuming antitrust authorities could be assuaged, which was consid-ered more likely under the current administration than when Masayoshi Son, Softbank’s chairman, previously went after T-Mobile during the Obama government. Then, he backed away in the face of almost certain blocks or major terms and conditions. This time, the sticking points appeared to have been valuations, particularly of spectrum (Sprint has far more, but TMO is stronger in the cost-effective sub-1 GHz bands); Son’s desire to keep control of his US operator; as well as network and services strategies, which are currently in stark contrast.
TMO and Sprint end talks—pros and cons:
Sprint’s CFO Tarek Robbiati told an analyst call, to discuss the Altice arrangement: “I will not venture in selling this transaction in making up for the tens of billions in synergies that we would have had jointly with T-Mobile had we merged with them. These synergies were enormous by every analysts’ account. This transaction is a pretty interesting crea-tive transaction, but it will not deliver the tens of billions in synergies that we would have seen in a merger with T-Mo.”
But a broader pact with the cablecos could deliver some of the benefits Robbiati wanted – fewer synergies, for sure, but unlike TMO, it would bring wireline and TV assets into play for Sprint for the first time, enabling new services and network economics.
Wall Street analysts generally thought the news that Sprint and TMO would stay inde-pendent would be good for towercos and equipment suppliers (more customers) but bad for AT&T and Verizon. Although the merger would, had it been proposed officially, been sold to authorities on the basis of enhanced competition for the big two, many believe that it is more problematic for the major telcos to have to respond to two very different chal-lengers, both disruptive in their own way.
“The only positive for AT&T and Verizon is that there is slightly less chance of cable com-panies receiving an aggressively priced MVNO from T-Mobile/Sprint that would allow ca-ble to be more aggressive in the wireless market,” wrote analysts at New Street Research in a note to investors. “Although, perhaps this is offset by a greater risk of a network shar-ing deal between cable and one of the challengers.
But there are risks for the two would-be partners too, since they are left without the econ-omies of scale they had sought from a marriage. “For Sprint, the key question for investors will be how will a standalone Sprint invest in the network while maintaining its commit-ment to de-lever the balance sheet?” asked Wells Fargo analysts. Some speculated that TMO would look for an alternative merger partner – after all, despite the market impact of its recent ‘Uncarrier’ propositions, it cannot go on eating into its own margins forever, es-pecially with its higher capex burden compared to Sprint’s, and the need to invest in 5G soon.
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