Democratic Commissioner Jessica Rosenworcel has said that it might be necessary for Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) to merge in order to remain viable players in the U.S. wireless market, according to a report in the Wall Street Journal. That position is notable as it could represent an easing of regulatory opposition to the proposed deal, which Sprint and parent SoftBank have been floating during the past several months.
It's unclear whether Rosenworcel is breaking ranks from her three fellow Democratic commissioners on the five-member agency. The two Republican FCC commissioners have been much more open to mergers like the proposed one between Sprint and T-Mobile. It's also unclear if she would actually vote for a merger between Sprint and T-Mobile.
"The commissioner does not prejudge transactions that have not been filed," a Rosenworcel spokesperson told the Journal.
Nonetheless, the report could represent a "glint of hope," as the WSJ noted, for Sprint and SoftBank in their quest to combine Sprint and T-Mobile.
Sprint and Japan's SoftBank shopped the proposed combination to FCC and Department of Justice regulators earlier this year, but received a decidedly cool reaction to the deal. Regulators generally expressed their desire to retain four nationwide wireless carriers, and they pointed to T-Mobile's recent successes in the market as evidence bolstering their position. T-Mobile during the past four quarters has gained a total of 6.1 million new subscribers.
But some have argued that Sprint and T-Mobile will eventually need to merge in order to effectively compete against heavyweights AT&T Mobility (NYSE: T) and Verizon Wireless (NYSE: VZ). "Our analysis shows that neither Sprint nor TMUS have enough revenue to cover their fixed costs and it is highly unlikely that both will capture enough new revenue to do so," analysts at New Street Research recently wrote, pointing out that they believe Sprint and T-Mobile need to raise an additional $10 billion in the next 18 months to remain competitive, an effort that could be stymied by market conditions. "Both companies aren't independently viable at the same time."
T-Mobile parent Deutsche Telekom, for its part, remains open to a merger between T-Mobile and Sprint in the United States. "If the market were to be streamlined, T-Mobile US would be excellently positioned," CT CEO Tim Hoettges said at the company's annual shareholders meeting, according to Reuters.
"Our strategy in the U.S. remains unchanged," he said. "We will be open to any consolidation."
SoftBank and Sprint are pushing ahead on the deal, according to a Bloomberg report earlier this month. The companies are lining up financing for a bid on T-Mobile and could make an offer this summer.
"The chance that Sprint makes a bid sooner rather than later is looking more likely, as interest rates are low, but expected to rise, Sprint stock valuation is strong and there doesn't seem to be an unreasonably high probability that a Republican will win the election in 2016," wrote analysts at Credit Suisse this morning in a note to investors.
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