The potential merger between Sprint and T-Mobile has faced an uphill battle for months, given U.S. regulators’ preference for a mobile market with no less than four major players. Now the companies appear to have given up. On Tuesday night the Wall Street Journal reported that Sprint was dropping its bid for T-Mobile. Dan Hesse, the company’s chief executive, is also expected to step down, with Marcelo Claure, a Sprint board member, taking his place. Neither company is talking.
If this deal really was doomed from the start, it is probably better for both companies that Sprint has cut bait. A time-consuming regulatory battle would have kept the businesses in limbo, and failure might have delayed any further consolidation in the wireless industry, which both companies clearly want. As they turn back to business, T-Mobile will have a much easier time.
T-Mobile’s recent success has seemed like a strong argument against a merger. It has been poaching customers from the competition for over a year. The entire industry has responded by reassessing the structure of their deals with consumers. Even as the other major carriers have loosened requirements on contracts and experimented with lower-cost plans, T-Mobile added 579,000 monthly phone subscribers last quarter. Analysts have been demanding to know why T-Mobile would want to sell to Sprint, anyway.
T-Mobile’s chief executive, John Legere, has repeatedly said that consolidation is eventually good for the industry: AT&T and Verizon are just too big to compete against in the long term. Last week he told investors that T-Mobile would have various opportunities to pursue deals, however. Hours later, Iliad, a French telecom, offered to pay $15 billion for the company, an offer T-Mobile plans to turn down. Next up may be Dish Network and Charlie Ergen, who was outbid by Sprint and may be tempted to may another run at T-Mobile.
As for Sprint? Well, “no one really talks about a stand-alone bull case for Sprint anymore,” industry analyst Craig Moffett wrote last week. While Sprint had its first profitable quarter in over six years, the company is still in the worst shape among the major wireless companies in the U.S. It is in the midst of putting together a nationwide LTE network, a requirement if it wants to attract the customers willing to pay the highest bills. This has been challenging for a number of technical reasons, not least the range of spectrum the company has access to, which has been patched together across different bands. As it works on that, it has quality concerns. It’s not hopeless, just hard, says Scott Dinsdale of KDP Advisors. “We think this business has the scale required, and the new network will help, so we think it can only improve over time,” he wrote recently. But he’s concerned with the amount of money Sprint will have to spend to get there.
