T-Mobile, Sprint parents flirt post-Q1 earnings

SoftBank Masayoshi Son at Mobile World Congress 2017
SoftBank President Masayoshi Son speaks at Mobile World Congress earlier this year

The wireless dance floor heated up a bit this week as the parent companies of both T-Mobile and Sprint suggested they’re open to finding a dance partner.

Deutsche Telekom, which owns 64% of T-Mobile US, said its American operator will likely be involved in merger talks in the coming months, Reuters reported. And T-Mobile’s strong momentum gives it leverage to forge a strong alliance, according to Deutsche Telekom CEO Tim Hoettges.

“The strong position we have established for ourselves gives us the time and space to evaluate all options together with colleagues in the U.S.,” Hoettges said during a post-earnings conference call, Reuters reported “Purely theoretically, we can see several advantages to consolidation and convergence.”

Hoettges’ comments come just a day after Sprint parent SoftBank openly stated its desire to merge with the No. 3 wireless carrier in the United States.

“Sprint’s name is mentioned a lot with regard to the restructuring of the telecommunications market in the U.S.,” SoftBank President Masayoshi Son told reporters after the massive Japanese telecom posted its quarterly earnings, according to Nikkei Asian Review. T-Mobile remains Son’s “favorite” option, he said, adding that “All negotiations will now be open.”

SoftBank spent more than $20 billion to acquire Sprint in 2012, and the company had hoped to acquire T-Mobile as well, merging the carriers to take on Verizon and AT&T. That effort was dropped when U.S. regulators indicated they were opposed to a merger, however.

Reports surfaced in February that SoftBank was willing to give T-Mobile control of Sprint if necessary to achieve a merger between the two smaller U.S. operators. Speculation of a merger between the two smaller tier-one operators has increased under Donald Trump’s administration, which many expect to demonstrate a lighter regulatory touch than the Barack Obama administration did. And investors appear to be betting on a tie-up between the two carriers, sending shares of both companies skyward in recent months.

Sprint has long touted its mid- and high-band spectrum, saying those assets enable the carrier to meet ever-increasing demand for wireless data while minimizing the need to invest in its network.

Sprint remains the smallest major wireless carrier in the U.S., though, and it still faces significant financial challenges. It owes billions of dollars in debt that must be repaid over the next few years, and the carrier’s financial burdens have weighed heavily on the parent company over the last few years.

But while T-Mobile and Sprint are clearly eyeing each other across the dance floor, analysts say a tie-up is far from a done deal. The U.S. wireless market has grown increasingly competitive over the last two years, and both T-Mobile and Sprint are growing their market share as the network gap continues to close between the four major operators.

“We continue to believe both SoftBank and Deutsche Telekom are highly likely to explore a potential combination (cold SoftBank be any clearer on the call?),” Matthew Niknam of Deutsche Bank wrote in a note to investors. “That said, we also continue to believe a Sprint/T-Mobile deal would face significant regulatory hurdles, which do not go away with a new administration in D.C. … Though the deal is framed as an opportunity to take a ‘heavyweight fight’ towards larger incumbents, we also believe there would be heightened regulator concerns around: (1) significantly rationalizing/weakening competitive intensity in the marketplace (i.e. two mavericks are better than one, and (2) opex synergies, which (as is often the case with horizontal deals) are likely to result in some level of reduced spending/jobs.”