Germany's Deutsche Telekom has warmed to the idea of a merger between its T-Mobile US subsidiary and Sprint rather than an outright sale of the company, according to German press reports.
In an all-stock deal with Sprint, which operates the fourth-biggest mobile network in the US, it would seek to retain control of the new entity, according to a story from Germany's Handelsblatt newspaper (subscription required).
That update comes after Bloomberg recently reported that T-Mobile US Inc. and Sprint Corp. (NYSE: S) were in discussions about an all-stock deal but also speaking with other potential merger partners.
It also follows reports that T-Mobile and Sprint had restarted merger talks in May. (See T-Mobile, Sprint Restart Merger Talks – Report.)
By uniting the country's third- and fourth-largest mobile operators, the combination would produce a much bigger rival to market leaders AT&T Inc. (NYSE: T) and Verizon Wireless but leave the US with just three national players.
Regulatory concern about the impact on competition derailed Deutsche Telekom's earlier efforts to sell T-Mobile to Sprint, as well as an even older attempt to secure a deal with AT&T.
But telecom industry executives have grown optimistic that a new and more "business-friendly" administration under the presidency of Donald Trump will be less resistant to such consolidation.
In the meantime, Deutsche Telekom's strategy appears to have changed quite dramatically.
Having at one time seen T-Mobile as a distraction from its main European interests, the German incumbent today regards the US business as an engine of sales growth and a potential "kingmaker" in the US market.
Its success owes much to the marketing genius of CEO John Legere, whose eagerness to subvert industry convention has fueled growth in customer numbers.
The total number of subscribers at the company has shot up from about 34 million five years ago to more than 72 million today. And in the last year T-Mobile's share price has risen about 50% on the Nasdaq.
But given the disappointing track record of mega-mergers in the telecom industry, there is bound to be concern about the outlook for a combined T-Mobile and Sprint.
T-Mobile has clearly done an admirable job of challenging AT&T and Verizon as a much smaller player and even believes it can stand up to those giants on the technology front.
Just a few weeks ago, Legere announced plans to build a nationwide 5G network by 2020 and mocked AT&T's use of the 5G label to promote what appears to be an advanced 4G service. (See Is T-Mobile's 5G Plan Just a Pipe Dream?)
Even with managerial changes and the backing of Japan's SoftBank, Sprint has struggled to make an impact and could become deadweight for T-Mobile following a merger.
The worry will be that T-Mobile morphs from being a fast-moving and disruptive player into one more focused on integrating Sprint's assets -- not all of which look very attractive -- with its own.
T-Mobile chief financial officer Braxton Carter recently acknowledged that merging the financial structures of the two companies would be a challenge and that T-Mobile had other "options" besides a tie-up with Sprint. (See T-Mobile CFO on Sprint: Interesting, but We Have Options.)
But he is also reported to have said that overall cost savings resulting from a merger could amount to approximately $30 billion.
Nevertheless, Deutsche Telekom could find itself drawn into a battle against SoftBank for control of the new-look entity and its strategy.
SoftBank Corp. acquired Sprint in 2013 in a deal valued at more than $20 billion. CEO Masayoshi Son has taken an active interest in Sprint and could find it hard to relinquish control of the company or strategic decision-making to others.
Any deal that leaves German and Japanese companies in control of the country's third-biggest and fastest-growing mobile operator would seem at odds with Trump's protectionist instincts. But the past few months have shown that defining exactly what Trump stands for is not a straightforward exercise.
— Iain Morris, , News Editor, Light Reading