T-Mobile, Sprint Restart Merger Talks – Report
Shares in Deutsche Telekom have risen following speculation the German operator has kicked off fresh talks about a merger of its T-Mobile US subsidiary with SoftBank-owned Sprint.
The news triggered a rise of more than 4% in the German operator's share price during afternoon trading in Frankfurt.
A merger between T-Mobile US Inc. and Sprint would bring together the country's third- and fourth-biggest mobile operators and could provide a stronger challenge to market leaders AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) as all four operators make plans for the introduction of more advanced 5G services.
Deutsche Telekom tried to negotiate a sale of T-Mobile to Sprint in 2014, but that deal was shot down by regulatory authorities concerned about the impact it would have on competition.
An even earlier attempt to sell T-Mobile to AT&T also failed because of regulatory opposition.
But industry executives believe a more business-friendly administration under the presidency of Donald Trump will be less resistant to merger activity.
Any deal is likely to be very different from previous proposals, however. In the last couple of years, T-Mobile has replaced Sprint as the country's third-biggest mobile operator, and its market value has soared thanks to successive quarters of growth in profits and customer numbers.
T-Mobile's share price is currently about $66.20 on the Nasdaq, valuing the company at nearly $55 billion, and is up from less than $41 this time last year.
While Deutsche Telekom has previously seemed keen to offload the unit, regarding it as something of a distraction from its core European markets, T-Mobile remains the only part of the company that is reporting meaningful revenue growth. (See DT Gets Familiar Earnings Boost From US Biz.)
Timotheus Höttges, Deutsche Telekom's CEO, has recently talked about T-Mobile as a potential "kingmaker" that could take a leading position in future market consolidation.
On the other hand, merging T-Mobile with Sprint, which has continued to struggle despite SoftBank's attempts to rejuvenate the company, could bring an abrupt halt to the company's glory days, forcing it to concentrate on integrating two very different companies rather than on growth ambitions.
Another concern is the bill that operators face to roll out higher-speed 5G services.
T-Mobile has already spent heavily on making improvements to its 4G network and recently said it would deploy a nationwide 5G network by 2020, using 600MHz spectrum for which it paid $8 billion during a recent auction. (See T-Mobile's 2020 Plan Piles Pressure on Europe's 5G Players, Is T-Mobile's 5G Plan Just a Pipe Dream? and T-Mobile Promises 'Nationwide' 5G in 2020 With New Spectrum.)
A truly nationwide 5G rollout might cost T-Mobile as much as $25 billion, according to estimates provided by the Ovum market research group, with T-Mobile planning to spend as little as $5 billion this year. (See T-Mobile 5G Plan Could Drive Capex to Record Highs.)
With both AT&T and Verizon also looking at early deployments of 5G services, T-Mobile is under pressure to keep pace on the technology front and prove that it is not just about low-cost deals and generous data allowances.
— Iain Morris, , News Editor, Light Reading