Last week, Sprint Nextel pre-announced a hideous Q4, warning investors that it was losing customers far faster than Wall Street expected. The stock promptly fell 25% Friday, and now sports a $25 billion market cap and a label of “buyout target.”
Who might scoop up Sprint? In addition to the usual suspects — private equity flippers and rival wireless companies — cable giant Comcast (CMCSA) is often named as a potential buyer. In Nov. 2006, Citigroup said there was a 40% chance Comcast would buy a wireless company in the next year, with Sprint and Deutsche Telekom’s T-Mobile the likely targets. That didn’t happen. But should Comcast’s Brian Roberts pounce on Sprint (S) now? A quick pro/con:
Why Comcast should buy Sprint:
- Bundle mania! The two biggest telcos, AT&T (T) and Verizon (VZ), both own wireless companies, and are aggressively building out fibre optic networks to go after cable TV and Internet customers. Overnight, Comcast could offer savings/retention perks to Sprint subscribers, and vice-versa. (Comcast already owns some wireless spectrum through a joint venture called SpectrumCo. Comcast also has a separate joint venture with Sprint and some other cable companies — “Pivot” — to offer services together. But so far, neither of those deals has led to anything. Buying a functioning carrier would be an entirely different scenario.)
- Sprint already runs Comcast’s Internet phone service. There have to be some sort of synergies they could reap here.
- Sprint’s WiMax roll-out is already years ahead of rival cellular carriers’ “fourth-generation” wireless networks. Comcast could easily sell wireless broadband, phone service, and some sort of Internet TV in areas where it doesn’t offer cable service.
- Sprint’s brand image can’t get much worse. Renaming it Comcast Wireless wouldn’t be the worst idea in the world.
- Sprint just replaced its CEO and is in prime shape for a management shake-up.
Why Comcast shouldn’t buy Sprint:
- Sprint is rapidly losing customers, especially on its Nextel walkie-talkie service. A new owner wouldn’t change that overnight.
- Comcast has enough problems of its own right now, like activist shareholders, a weakening economy, fibre competition from AT&T and Verizon, and Internet video competition from Apple, Netflix, etc.
- Comcast is working with devalued currency: Shares are down more than 40% from its 52-week high.
- It would be no closer to getting near Apple’s iPhone, which is tied exclusively to AT&T for several years.
- Wireless voice revenue — plain vanilla phone calls — is declining and it’s not guaranteed that carriers will be able to sell enough data services — messaging, Web access, mobile video, etc. — to make up the difference.
- There’s no proof that adding wireless service to the product mix will help Comcast’s cable business. But we do know it will jack up costs.
This debate won’t die soon, so we’d love to hear your thoughts. Is this a deal Comcast should do?
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