Earlier this week BTIG financial analyst Walter Piecyk told CNBC that he believes that T-Mobile’s proposed acquisition of Sprint has less than a 50% chance of closing. The reason behind that dour prediction is that Piecyk fears the Department of Justice may be asking T-Mobile to give up so much in concessions that a fourth competitor could be created that is stronger than Sprint. Among those concessions are the possible sale of Sprint’s MVNO Boost Mobile and the divestiture of spectrum. If that’s the case, there’s no reason for T-Mobile to pursue the deal, Piecyk said.
If Piecyk’s prediction is correct and T-Mobile backs away from the Sprint deal, where does that leave Sprint? Can the carrier reinvent itself?
It would be wise for Sprint’s management team to look at T-Mobile’s reinvention in 2012 after AT&T scraped its $39 billion takeover of the operator because of stiff opposition from the Obama administration. The cancellation of the deal was considered a major setback for AT&T and left T-Mobile, which at the time was considered the weakest of the four nationwide operators, with an uncertain future.
T-Mobile’s turning point was when parent company Deutsche Telekom named John Legere, the former CEO of Global Crossing, to be T-Mobile’s CEO in September 2012, just nine months after AT&T cancelled the merger. Legere is credited with single-handedly reinventing the way wireless service is sold in the U.S. by eliminating service contracts and promoting early handset upgrades.
Plus, his aggressive demeanor with competitors and his high energy style was a welcome relief to T-Mobile employees who had become downtrodden after years of layoffs, budget cuts, and the failed takeover by AT&T.
Roger Entner, founder of Recon Analytics, believes that new management will be key to Sprint’s success should the T-Mobile acquisition fail. “History shows what a good new management team can do,” he said. “[John] Legere quickly analyzed the situation and determined that he couldn’t just do what previous leaders did. He had to break the mold. That is the secret to success.”
While Sprint Chairman Marcelo Claure was initially hired in 2014 by Sprint to turn around the struggling firm, Claure was never able to make significant inroads like Legere did for T-Mobile. In January 2018 Michel Combes was named CFO of Sprint and then promoted to CEO in June just about a month after T-Mobile announced its intent to purchase Sprint. At that time Claure was named executive chairman and tasked with focusing on getting regulatory approval for the deal.
Not only does Sprint need to rethink its existing management team, it also needs to invest in its network instead of continuing to cut capital expenditures. “Sprint says it is spending $5 billion on its network. That’s only one-third of what the other operators are spending,” said Bill Ho, analyst with 556 Ventures. “If [Sprint] goes it alone, they will have to throw more money at the network.”
But is Sprint’s brand too damaged to overcome a failed merger with T-Mobile? Piecyk floated this question during his CNBC interview, noting that Sprint has been floundering for some time despite SoftBank’s 78% stake in the operator. In 2013 SoftBank invested about $21.6 billion in Sprint.
“Sprint’s brand has been problematic since it acquired Nextel [in 2005],” said Ho. “They really need a success story.”
Nevertheless, analysts are uncertain whether SoftBank will help Sprint by investing more in the operator. Some speculate that SoftBank will instead look to Wall Street for more funding. “Wall Street will only finance it if they have confidence in the leadership team,” Entner said. "And why would Wall Street invest more in Sprint if SoftBank isn’t willing to?"
Despite Sprint’s precarious position, the company continues to tout its 5G story. As Ho said, company leaders are “putting on a brave face.” But Sprint may soon need more than a brave face. If the T-Mobile merger fails, it will need a management revamp and major network investment to remain a valid competitor in today’s wireless market.