T-Mobile could join a Sprint tie-up with Comcast and Charter: analysts

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A complex arrangement between the four companies could pay dividends all around.

Reports of a potential wireless partnership between Sprint, Charter and Comcast have quieted speculation about a merger between Sprint and T-Mobile. But analysts say T-Mobile could play a role in any such arrangement.

The Wall Street Journal reported late Monday that Sprint Chairman Masayoshi Son struck a exclusive two-month deal to hold discussions with Charter and Comcast through July focusing on potential partnership arrangements. One such deal could include the cable companies taking an equity stake in Sprint and investing in the carrier’s network, through which they could presumably launch a branded service.

A partnership with cable companies might be a better fit for Sprint than a merger with T-Mobile for several reasons. Simply consolidating the number of major U.S. wireless operators might not gain regulatory approval, while the arrival of a new entrant or two likely wouldn’t garner much scrutiny. And Sprint may not have to cede nearly as much control as it might under terms of a deal with T-Mobile, which has enjoyed significant traction over the last few years.

Also, Sprint could funnel a cash injection from Comcast and Charter into its 2.5 GHz network build-out. And the mobile network operator could leverage Comcast and Charter’s extensive wireline networks and Wi-Fi hotspots to more quickly build out its 2.5 GHz holdings and more cheaply backhaul its mobile network traffic.

But T-Mobile could join such an effort, Jonathan Chaplin of New Street Research wrote in a note to investors. A model that complex would be difficult to pull off, but it could benefit all stakeholders.

“Actually, the best-case scenario (for T-Mobile) would be a four-way deal; however that seems tough to get across the goal line,” Chaplin wrote. “The worst-case scenario would see a Sprint/cable deal that leaves T-Mobile out in the cold entirely; we don’t think this is the most likely outcome either. And then there are a host of scenarios in between, where T-Mobile would benefit, potentially greatly, but without the negotiating leverage that many have assumed.”

Those thoughts echo comments made by T-Mobile CFO Braxton Carter last month during an investors conference. “Of course” discussions of a potential alliance between T-Mobile and Sprint will occur, Carter said, but a final arrangement might include the two cable operators.

“I think cable—it’s a bit early, that’s going to develop; they’re going to kick the tires,” Carter predicted. “But what about Sprint, T-Mobile and a coalition of Comcast and Charter, and the value creation that could come out of that?”

And by engaging in talks with Sprint, the cable companies may be making sure they have a seat at the table ahead of any one-to-one deal between the wireless carries, according to Craig Moffett of MoffettNathanson.

“Think of this as a three-way hedge. Ultimately, this doesn’t make a Sprint/T-Mobile deal any more or less likely than it was before. But it makes sure that the cable operators preserve their options either way,” Moffett told Barron’s. “This ensures (Charter and Comcast) will get attractive terms not only from Sprint, but also from Verizon. Sprint hedges against the risk that a deal with T-Mobile might not happen after all, and it gives Sprint somewhat more negotiating leverage if it does.”