T-Mobile parent company Deutsche Telekom (DT) is considering bidding on rival Sprint Nextel (S), the Wall Street Journal reports, citing anonymous sources. A deal would create the biggest U.S. wireless carrier: Combined, No. 3 carrier Sprint and No. 4 T-Mobile had 82.7 million subscribers at the end of 2007.
This sounds like a solid move: There are advantages to being bigger, like better access to hot, new phones, and economies of scale. AT&T’s (T) position as the biggest U.S. wireless provider has no doubt helped it score exclusive access to Apple’s (AAPL) iPhone, new RIM (RIMM) BlackBerries, Garmin’s forthcoming Nuvifone, etc.
And Sprint’s pretty cheap: Despite a 9% bump this morning, with a $24 billion market cap, its stock is still down 64% from its 52-week high, reached last summer. (Though whoever buys it also gets to take home $20 billion in debt.)
But there are big technical and organizational hurdles that could make a T-Mobile – Sprint combo a tricky one:
– An obvious one: The carriers use three different, incompatible wireless technologies — Sprint uses CDMA for its mobile phone network and iDEN for its Nextel walkie-talkie network, while T-Mobile uses GSM, the wireless technology that’s most popular around the world. The old AT&T Wireless managed to transition its customers from TDMA to GSM — so it’s possible — but it will be a headache.
– Sprint’s already committed to building a next-generation network using a technology called WiMax, while other GSM carriers are leaning toward a rival, forthcoming technology called LTE. Would T-Mobile scrap Sprint’s not-yet-launched WiMax network? Would they sell it or spin it off? Would they build and operate both networks?
– Competing bidders could emerge, driving up the price. Comcast (CMCSA), the biggest U.S. cable company, has been trying to figure out its wireless strategy for a long time, and industry watchers have suggested it could buy Sprint for years. (Management publicly says no.) Verizon Wireless, which also uses CDMA, could most easily swallow up Sprint. Any deal between big players could face regulatory scrutiny.
– A new owner won’t quickly change the fact that Sprint is losing customers and is a financial mess. Its turnaround will be long and slow, and any technology transition won’t speed it up. That said, unlike Sprint, Deutsche Telekom has figured out how to attract new customers and make a profit, so maybe they could successfully shake things up.