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Should Sprint buy T-Mobile?

Matt Hamblen | Jan. 30, 2014
Sprint is expected to report a big loss of subscribers in its next earnings report, expected Feb. 11, further fueling speculation that No. 3 carrier Sprint has to merge with brash and bold "Un-Carrier" T-Mobile US.

As of Oct. 31, Sprint had 54.9 million total subscribers, 30.9 million postpaid.

Bill Menezes, an analyst at Gartner, said he doesn't think it's advisable for Sprint to merge with T-Mobile.

"It's unclear that the continuing organizational disruption at Sprint from integrating another mega-merger would benefit the company in the long run or would benefit customers," he said in an email. "Sprint's already running behind in its turnaround and that's costing it customers."

Menezes said that Sprint customers, including large enterprise customers, are untrusting of Sprint because of network disruptions that hit during Sprint's expansive Network Vision upgrade, which included the addition of LTE wireless technology.

"My guess is that [subscriber losses] could spike if they announce a merger," Menezes said. "Numerous Sprint enterprise customers already have suffered transient, but significant service disruptions due to the Network Vision upgrades. Many customers are pissed and many have left the company as a result."

T-Mobile, by contrast, has a small share of large business customers, Menezes said.

While Menezes opposes a Sprint-T-Mobile merger, analyst Jack Gold at J. Gold Associates said it should happen, mainly to challenge what he called the AT&T and Verizon "duopoly."

A combination of Sprint and T-Mobile "would make for a viable third competitor in the U.S. market where the minor players are shrinking," he said. "The argument that a merger would lower competition with fewer choices is only valid when the competition is on equal footing and has the potential to make a difference in cost structure or products. With Sprint so far behind, I don't think you could make that argument."

Gold said T-Mobile can't continue to lure more subscribers through its UnCarrier initiatives, which include making hefty payments for smartphones and rebates, if it hopes be profitable for the long term. "Even T-Mobile has limited marketing capability against the duopoly of Verizon and AT&T," he said.

Gold said that a combined Sprint and T-Mobile would provide an attractive combination of spectrum bands, improving network speeds and coverage.

Given it will take years for either company to fully transition to LTE, he said a combined company would have to maintain two network footprints for at least three to four years. "That keeps operations costs higher than they would like, but it's doable, and you can incentivize users to upgrade to new devices sooner," Gold said.

Sprint now operates at 800 MHz (via networks obtained through the Nextel acquisition); 1900 MHz (formerly used for Sprint PCS with 2G and 3G); and 2.5 GHz (former Clearwire spectrum which allows Sprint to create Sprint Spark to combine three bands for better network service.)

T-Mobile has spectrum in the 1700 and 1900 MHz bands and recently bought 700 MHz spectrum from Verizon. The only common band the two companies hold is 1900 MHz, Menezes noted, unless both companies buy some of the 600 MHz band in the next year or so.

 

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