Sprint, T-Mobile could be ‘walking away from close to $50B in value’: New Street

Sprint has reportedly walked away from merger talks with T-Mobile.

An inability to come to finalize a merger deal would be “a failure of management” of both Sprint and T-Mobile that would see the companies forfeit tens of billions in value, New Street Research said.

And that failure would be particularly bad news for Sprint.

The long-anticipated tie-up between the two U.S. carriers may be dead, according to multiple reports that surfaced Monday, as Sprint parent SoftBank has opted not to hand over control of a combined carrier to T-Mobile parent Deutsche Telekom. Instead, Sprint will invest heavily to upgrade its network as it continues to regain its financial footing.

While it’s possible SoftBank’s move may strictly be brinksmanship—such a move wouldn’t be out of character for SoftBank CEO Masayoshi Son, as New Street pointed out—it may instead mark the end of lengthy negotiations. And that would mean both operators would have missed a huge opportunity.

“(I)f these management teams fail to get this deal across the goal line, they have failed to do their job,” New Street wrote. “They will be walking away from close to $50 billion in value. Regardless of what either side things their asset is worth on its own, adding $50 billion to that starting value would be a big enough increase in value that they ought to have found a way to get the deal done.”

T-Mobile has built impressive momentum in the U.S. wireless market over the last three years, of course, and it continues to grow its market share and maintain a healthy bottom line. Whether Sprint can thrive on its own remains unclear, though: The nation’s fourth-largest carrier has compiled an extremely valuable portfolio of spectrum, it has grown its market share in recent quarters through aggressive promotions, and it continues to cut costs in major ways. It is still billions of dollars in debt, however, much of which will come due over the next few years.

And even if Sprint and T-Mobile eventually come to terms, there’s no guarantee the tie-up would gain regulatory approval, as William Ho of 556 Ventures noted.

“Even if the parties go back to the table and an agreement comes about, it’s not a done deal,” Ho told FierceWireless via email. “As we saw with the AT&T-T-Mobile merger attempt, many consumer groups came out against it. It’s likely that consumer groups will also be against it louder than it has been simply because the perception of choice and competition will be taken away. This obviously can be a sway factor to regulatory bodies and policy makers and legislators.”

Sprint had recently been in talks to form a wireless partnership with Comcast and Charter, but the cable operators don’t appear to bring as much value to a merger as T-Mobile would. So Sprint’s best option aside from a marriage to T-Mobile may be foregoing any M&A activity. And that would mean increasing its network investment in a significant way, Ho said.

“If Sprint goes it alone, the biggest thing they have to do is bring up their network capex spend,” Ho observed. “After so many years of cutting that and being smart about capex (i.e., Magic Box), it’s taking its toll on reputation. This is founded on that long trajectory and its recent position of the improvement percentages relative to previous years…. With price-leader status, it’s not really significantly moving the customer-acquisition needle for them. As competitors have seen, network spend really solidifies their subscriber bases, first and foremost. T-Mobile is Sprint’s biggest competitor with the combination of value and price on top of huge brand momentum.”