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DT Wants Majority Stake in T-Mobile-Sprint Merger – Report

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.

In recent quarters, it has been the only part of the Deutsche Telekom AG (NYSE: DT) group reporting meaningful growth in sales and earnings. (See DT Gets Familiar Earnings Boost From US Biz.)

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.


For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.


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, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

JDonahue 6/22/2017 | 6:28:38 AM
Merger The report I read about the all stock deal said Son was willing to agree to cede control to DT to get this done.  To me he just sees this as a payday down the road when he can cash out his stock.

Who knows maybe he's scheming that down the road he can gain a majority of shares but will he have voting shares?  I doubt that though.  He never wanted to invest the money to bring Sprint up to speed after the purchase.

The loser is Dish who is left to Verizon because they have no where else to go.  

LeGere just gets to go completely wild after this.
KBode 6/21/2017 | 5:18:48 PM
Re: IF sprint retains control I've yet to see a single consumer over at our site that thinks this deal is a good idea (at least for THEM). Of course I'm sure the sales pitch will insist that it will usher forth a revolution of connectivity, but killing one of four major competitors never really ends well. I don't care how sharp-witted, funny and potty mouthed the CEO is. :)
KBode 6/21/2017 | 5:17:31 PM
Re: Merged... Yeah I really don't see it working any other way given Sprint's ongoing inability to craft a brand that resonates with consumers. Meanwhile the Sprint network everybody wants seems perpetually hidden around the next corner. 
DanJones 6/21/2017 | 2:54:02 PM
Re: Merged... Everything so far suggests T-Mobile would want control, particularly of the finances.
SiteDeli35623 6/21/2017 | 12:44:33 PM
IF sprint retains control If Sprint retains control I will leave Tmobile as soon as the deal closes if not before. Sprint is not a customer focused as T-mobile the way they treat there customers and the service the offer shows daily.
KBode 6/21/2017 | 12:19:45 PM
Merged... I'm very curious to see how Legere tries to sell this merger. It's wise to keep things under the T-Mobile brand (even if I doubt they'll be as disruptive with one less competitor in the market), since I think a total Sprint brand takeover of T-Mobile would have seen a major consumer revolt. I'm not entirely sure that won't still happen. 
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