Why T-Mobile Wants To Buy Sprint: Relevance

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T-Mobile parent Deutsche Telekom is again considering making an offer for Sprint Nextel, in a bid to make T-Mobile much bigger and more relevant in the U.S. market, where it is in distant fourth place.

This idea isn’t new — rumours of the same deal showed up last May — but the UK’s Telegraph says “serious preparations for a deal began three months ago.” Sprint shares are up 11% on the news.

What’s the point? In the wireless market, bigger is better. Size means more favourable pricing with suppliers, more exclusive deals for better handsets, and other economies of scale. If the two combined, they’d have 78 million subscribers — in third place, but a much closer gap to leaders Verizon and AT&T.

Sprint is also pretty cheap, at an $11 billion market cap. (Though it has $21 billion in debt, for a total enterprise value of $27.2 billion, according to Yahoo Finance.)

As we said last year when the deal first popped up, integrating T-Mobile and Sprint would be a headache. The networks use three different wireless technologies, and have different plans for their 4G networks. T-Mobile might also have to deal with other bidders, such as Comcast.

But if Deutsche Telekom is serious about making a big splash in the U.S., buying Sprint is going to get it there much quicker than its anemic organic growth.

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