There have been rumors in the past week that T-Mobile parent company Deutsche Telecom (NYSE:DT) is mulling an acquisition of third largest US carrier Sprint (NYSE:S) as part of a spending spree aimed at reviving its struggling T-Mobile brand. UK’s Telegraph reported that DT is working with its banking advisors to bid for Sprint as soon as in the new few weeks. The acquisition would be DT’s second consolidation play after forming a joint venture with Orange in the UK. If it goes through, it could also have the opposite of its intended affect – actually helping out its competitors, AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ, NYSE:VOD).
While the US wireless market is “crying out for consolidation,” as Bernstein Research analyst Craig Moffett put it, a T-Mobile and Sprint combo would have more problems than just network incompatibility. Acquiring Sprint is the least bad option for DT, but that doesn’t make it good, he said. The long-term risk is that DT takes on the network integration problems that Sprint and Nextel battled before it.
While the companies work through this problem, AT&T and Verizon would be busy reaping the benefits that should have gone to DT and Sprint. “They would enjoy the fruits of a more rational industry structure without the heavy lifting of a merger,” he wrote in a research note. “In fact, the disruption of a merger (and protracted regulatory process) means that a merged T-Mo/Sprint would likely lose subscribers more quickly together than they would apart, potentially feeding subscriber growth at AT&T and Verizon in the interim.”
A more likely benefactor than the two carriers could be Sprint-backed Clearwire and its cable partners, which would gain another major feeder network to support growth and approve financial stability, Moffett added. That is, however, if DT – an LTE proponent in Europe – becomes as committed to WiMax as it is to the competing technology, Stifel Nicolaus analysts pointed out, laying out a number of questions the acquisition would present for 4G.
“Does DT remain committed to Clearwire, given DT’s 4G LTE plans, and if not, is there a potential buyer for Clearwire that would remain committed to building out a nationwide WiMAX network?” the analyst firm asked. “Or would DT drive Clearwire toward changing technology paths and deploying LTE over its substantial spectrum holdings? Could this company compete long term with Verizon Wireless and AT&T Mobility using the same 4G technology, or would the new company simply continue to struggle against the two larger companies as both Sprint Nextel and T-Mobile are doing today?”