Feature Article

May 17, 2011

Sprint Says It Might Have to Sell if AT&T Gets T-Mobile USA

Sprint Nextel Corp. CEO Dan Hesse has told members of Congress  that the firm might have to sell itself if AT&T purchases T-Mobile USA, as Sprint would find itself too far behind the two dominant U.S. wireless providers, AT&T and Verizon Wireless, which between them would control nearly 80 percent market share in the U.S. mobile market, while Sprint operates with 17 percent share. See http://www.projectworldawareness.com/2011/03/and-then-there-were-three-att-swallows-t-mobile/.


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What seems unlikely over the longer term, should AT&T get approval to buy T-Mobile USA, is that Sprint can remain independent. Mobility is a scale business, and Sprint would simply lack the scale to keep pace with Verizon and AT&T, many would argue.

Some cable executives have argued that mobility is a highly-mature and competitive business, offering few clear opportunities for cable operators to add significant value and gain significant revenue growth.
A few cable companies seem to perennially be included among the ranks of potential buyers as well, given the clear importance of mobile services in today’s communications market. Some will note, though, that the leading cable operators have dabbled in wireless for decades, with very little success, even when they have worked with Sprint.  
Also, Sprint is in the middle of a network modernization program. A potential buyer might want that program to be finished before attempting a deal. Some might bet that Sprint’s market value will dip over the next year, allowing the purchase to be conducted at a lower price.
Some observers also believe Sprint might ultimately buy the remainder of Clearwire it does not already own. Any potential buyer might well want to wait until all of that is resolved before making any bid for Sprint.
Even so, many believe nothing will happen immediately. For one thing, the AT&T approval process will likely take a year. Also, any Sprint buyer might want to wait a bit until Sprint can clarify its fourth generation network strategy and its relationship with Clearwire.
“CenturyLink is a company with a really good balance sheet and looking for areas to invest its capital, its free cash flow in growth,” said  Chris Larsen of Piper Jaffray Cos.
CenturyLink also has the financial strength to do such a deal. See Sprint’s Likely Buyer May Be CenturyLink After AT&T Deal - Bloomberg.
CenturyLink also now is significantly involved in the U.S. enterprise and business customer market, something that was much less the case in years past, when it mostly operated small and rural telephone companies with few business customers. The logic is that CenturyLink itself needs to get bigger, and needs mobile capability.
Having outgrown its rural and small town telecom roots when it acquired Qwest Communications, CenturyLink now is by far the largest independent carrier in the U.S. market, far outstripping its former independent company peers, but it remains far smaller than either AT&T and Verizon Wireless.
But some analysts believe the likely outcome is an acquisition of Sprint by some other player in the U.S. market. The most likely buyer, many believe, is CenturyLink, the biggest company in telecommunications without a national wireless capability. In fact, CenturyLink might need to get bigger, for one important reason.
If the AT&T transaction is approved, some observers think Sprint might try to bulk up by itself acquiring a couple of other CDMA-based mobile companies, including Leap Wireless International Inc. or MetroPCS Communications.
The two companies have already worked closely on new technology developments, having formed a machine-to-machine strategic alliance in 2010. See http://www.lightreading.com/document.asp?doc_id=207942&f_src=lightreading_gnews
But Verizon has shown no public interest in a Sprint acquisition, in fact seemingly agreeing to work with Vodafone, its minority owner, on a new range of global projects. Vodafone said during its recent quarterly earnings report that it is working with Verizon to "address the global enterprise market, target procurement savings and develop technology standardization."
For that reason, if Verizon Wireless actually wanted only to block the AT&T transaction, Verizon would announce a bid for Sprint Nextel now, forcing regulators to approve both transactions at once. That effort almost certainly would fail, but AT&T would find its acquisition plans blocked.
You might think the logical response is an acquisition of Sprint Nextel by Verizon Wireless. The problem with that course of action is in part the technological complexity (Sprint uses WiMAX for its fourth generation network while Verizon Wireless uses Long Term Evolution, though both carriers use CDMA for their 3G networks), but primarily the likelihood that antitrust regulators would bar the transaction, and it would concentrate about 93 percent of U.S. mobile share in the hands of just two companies.
Gary Kim is a contributing editor for MobilityTechzone. To read more of Gary’s articles, please visit his columnist page.

Edited by Chris DiMarco

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