Does T-Mobile Need Sprint to Scale?
Does it actually make sense for T-Mobile to merge with Sprint?
That question popped up a couple of times from finacial analysts in the question and answer session at the end of the operator's second quarter earnings call Thursday morning.
Here's the basic concern: T-Mobile US Inc. is, as CEO John Legere said on the call, "the fastest growing wireless company in America." The company added more than 1.5 million subscribers in the quarter to top 50 million subscribers. Sprint Corp. (NYSE: S), meanwhile, continues to lose subscribers -- albeit at a slower place -- with 220,000 jumping ship in the second quarter. Sprint actually lost 646,000 phone users in the quarter, but regained some ground with tablet adds. (See Sprint Seeds Market with LTE-A Handsets.)
Interestingly, Legere also questioned the idea that T-Mobile is just getting new customers as people defect from Sprint. "A significant amount of them are former AT&T customers," he claimed.
So should T-Mobile -- a brand that appears in the ascendent -- tie itself to Sprint, which Legere described as "bleeding" subscribers?
"T-Mobile is doing everything that's necessary to organically and inorganically grow this company," Legere said, while refusing to comment directly on the prospects of a Sprint/T-Mobile merger. (See Sprint, T-Mobile Settle on $32B Price and DT Asks for $1B Prenup for Sprint, T-Mobile WSJ.)
He stressed that T-Mobile has "multiple versions of things" it can do to grow "inorganically" and doesn't need to rush into anything. "This company is not in need of doing something to be successful in the short or medium term," he said.
Nonetheless, even Legere admits that in the long-term, T-Mobile needs to grow to compete squarely with AT&T Inc. (NYSE: T) and Verizon Wireless . "If you look at the long-term of the wireless industry, it is a scale game," he stated.
More spectrum acquisition is definitely one possibility for expansion. An AWS-3 auction is coming on November 13, and the spectrum incentive auction is expected in 2015. (See FCC Chief: Keep Spectrum Open for Smaller Carriers.)
"We're more than comfortable that we have the flexibility to participate in these upcoming auctions," said CFO Braxton Carter.
Spectrum would certainly be part of the major raison d'etre for any Sprint merger. And it would be a major task to integrate the two competitor's network into a cohesive whole. (See Sprint & T-Mobile: A Tale of Two Maps.)
On the whole, I just thought it was interesting call. A Sprint/T-Mobile deal has been reported almost as a done deal in the business and trade press recently, but Legere certainly wasn't going there.
And the carrier certainly does have options, as Thursday's $15 billion bid by French operator Iliad for a 56.6% stake in T-Mobile proves.
— Dan Jones, Mobile Editor, Light Reading