The odds of Sprint being acquired by either a cable company or T-Mobile are more than 70%, according to New Street Research.
The persistent buzz regarding a potential tie-up between T-Mobile and Sprint was hushed last month following a report that the nation’s smallest major U.S. carrier is in exclusive talks with Charter Communications and Comcast to help the cable companies move into the wireless market. But that period of exclusivity is likely to end in the next week, Jonathan Chaplin of New Street Research said, reopening the door to a range of potential tie-ups for the nation’s fourth-largest wireless network operator.
And T-Mobile is likely to play a role in any arrangement.
“None of the outcomes with cable preclude a deal with T-Mobile also (including the scenario where cable acquires Sprint), and in some scenarios, a subsequent deal with T-Mobile is very probable,” Chaplin wrote in a note to investors. “As we work through the probabilities of different permutations, we arrive at more than 70% odds of Sprint being acquired by cable or T-Mobile. The odds of T-Mobile ending up in a combination are not quite as good, but still better than 50%.”
While Sprint’s trove of 2.5 GHz spectrum is tremendously valuable, some analysts have questioned whether the carrier can fully leverage the airwaves given its precarious financial position. Sprint is gradually deploying service on those airwaves to increase capacity and accelerate network speeds, but the cash-strapped carrier may need to find a deep-pocketed partner in a market where new unlimited plans are spurring data consumption.
A merger of the nation’s two smaller major wireless carriers would surely face scrutiny from federal regulators, Chaplin noted. But securing a deal with a cable operator first could eventually pave the way for a partnership that includes both Sprint and T-Mobile.
“Investors have suggested that discussions with cable are evidence that discussions with T-Mobile had failed,” Chaplin wrote. “We don’t think this is the case, based on comments made by the management teams. There are also very good reasons why Sprint would look to secure a deal with cable before doing a deal with T-Mobile. They may just be optimizing the order of operations.
“First, the T-Mobile deal faces stiff regulatory hurdles; it could go through twelve or more months of review only to be rejected,” Chaplin continued. “It might be very difficult to secure a deal with cable after a deal with T-Mobile has been announced, until the T-Mobile deal has been approved. By contrast, any deal with cable would face an easier regulatory review and a network-sharing deal may not require a review at all. They could secure the very significant benefits of a network-sharing deal and then start the process again with T-Mobile immediately after.”