Deutsche Telekom reportedly wants to renegotiate its planned takeover of Sprint because the US operator is in considerably worse shape than it was two years ago, when the deal was first proposed.
The German operator is pursuing a controversial acquisition of Sprint by T-Mobile US, its own US subsidiary, and appeared to have the finish line in sight this week after a US judge agreed to a merger of the country's third- and fourth-biggest mobile operators following a drawn-out legal battle.
But according to a report in today's Financial Times (paywall applies), which cites two people close to Deutsche Telekom as sources, the German parent of T-Mobile thinks it should pay less than originally agreed because of continued setbacks at Sprint and a fall in its share price.
The story goes on to say that any renegotiation is opposed by Masayoshi Son, the chairman of Japan's SoftBank, Sprint's controlling shareholder. The FT cites people close to Son as the source of that information.
Under the original terms of the agreement, a deal would leave Sprint's shareholders with a third of the new-look company. However, as the FT points out, Sprint's earnings have remained flat since the merger plans were drawn up, while T-Mobile's have risen about 20%.
Sprint's shares were down nearly 6% in pre-market trading, at $8.10. They soared 78% on February 11, after this week's legal victory, but were trading at just $4.80 when the week began, down from $5.27 two years ago.
At $84.53 on Monday, T-Mobile's share price had gained 45% over the same period and has risen another 13% since the start of the week, to $95.67.
Deutsche Telekom and SoftBank have sought to justify the tie-up by saying it would create a stronger rival to AT&T and Verizon, the UK market leaders, and speed up the deployment of 5G networks in the US. The remarks are aimed at politicians who worry the US is falling behind China in 5G and could lose economic clout as a consequence.
Although Sprint has been struggling to retain customers, its valuable spectrum resources would give T-Mobile the means to challenge AT&T and Verizon in the market for much higher-speed 5G connections. T-Mobile's existing frequency assets are good for wide-area coverage but unlikely to support the most advanced 5G services, say critics.
However, the merger plans have run into opposition from consumer groups, who say the loss of a national player will inevitably push up prices in what is already one of the world's most expensive markets for telecom services. Trade union groups have also lashed out at the proposals, concerned the tie-up will result in job cuts despite Deutsche Telekom's original promise it will not.
Judge Victor Marrero appears to have brushed aside these complaints on the basis that Sprint could eventually face collapse if the merger deal fell apart, reports the FT.
"While Sprint has made valiant attempts to stay competitive in a rapidly developing and capital-intensive market, the overwhelming view both within Sprint and in the wider industry is that Sprint is falling farther and farther short of the targets it must hit to remain relevant as a significant competitor," wrote Marrero in his ruling.
Any attempts by Deutsche Telekom to renegotiate the deal could lead to further delays and uncertainty for the US wireless sector. That would inevitably hit the suppliers that sell network infrastructure to US operators, with both Ericsson and Nokia recently complaining that merger uncertainty had hit their financial performance in the final three months of 2019.
- SoftBank's Son is losing his shine
- Sprint/T-Mobile merger: The six big things that should happen next
- What they're saying: Reactions to T-Mobile/Sprint merger
- IT'S OVER: T-Mobile, Sprint merger approved – reports
- T-Mobile & Sprint: Marriage made in hell
— Iain Morris, International Editor, Light Reading