Report: Deutsche Telekom may acquire Sprint

Deutsche Telekom is considering acquiring Sprint Nextel and may do so in the coming weeks, according to a report in the British newspaper the Telegraph. The move could combine Sprint and Deutsche Telekom's T-Mobile USA. The speculation sent Sprint's stock soaring--it was up almost 11 percent to $4.15 per share in trading this morning--and had analysts pondering whether the potential tie-up between the third and fourth largest carriers in the United States is more than mere rumor.

According to the report, which cited anonymous sources, Deutsche Telekom hired Deutsche Bank to study a possible deal with Sprint. Deutsche Telekom has considered a deal with Sprint for more than a year, the report said, but got serious about it three months ago.

The report comes fresh off of Deutsche Telekom's decision to merge its struggling T-Mobile UK division with France Telecom's Orange UK unit.

Analysts were divided on both how serious the deal might be and its potential benefits.

"The U.S. wireless market is crying out for consolidation," Sanford C. Bernstein & Co. analyst Craig Moffett wrote in a research note, along with several fellow Sanford analysts. "A merger would, ironically, benefit Sprint's and T-Mobile's competitors more than it would benefit Sprint and Deutsche Telekom themselves."

Daiwa Securities analyst Michael Kovacocy said that the speculation should not be taken lightly. "The revival of this long-standing rumor should not be dismissed as merely a case of the rumor mill being turned once again," he said in a note to clients.

Kovacocy said a deal would make sense right now because Deutsche Telekom faces an "impending significant deterioration" in its U.S. operations because of both the U.S. dollar's weakness and T-Mobile USA's lack of scale.

However, any deal would be fraught with concerns, especially because Sprint and T-Mobile USA run different wireless technologies. Sprint operates CDMA and iDEN networks, and carries a relationship with WiMAX provider Clearwire, while T-Mobile runs GSM and WCDMA networks.

"It would be quite a messy merger to pull through given the number of technologies to sort out," Strategy Analytics analyst Phil Kendall told Dow Jones Newswires. "There are five technologies there trying to do one or at the most two things."

But some believe an alliance could strengthen the two struggling carriers. In the second quarter, T-Mobile USA posted lower revenues and weaker subscriber growth. Strikingly, postpaid net additions at T-Mobile made up only 17 percent of the carrier's customer growth in the second quarter, compared with 39 percent in the first quarter of 2009 and 80 percent in the second quarter of 2008. Meanwhile, Sprint continues to lose millions of postpaid subscribers.

Sprint spokesman James Fisher declined to comment, telling FierceWireless that the company does not comment on rumors or speculation. According to several reports, Deutsche Telekom declined to comment.

For more:
- see this Telegraph article [1]
- see this Dow Jones Newswires article [2] (sub. req.)
- see this Bloomberg article [3]