Market Overview

Sprint, T-Mobile Merger Faces at Least Four Major Hurdles

On Friday, rumors began circulating that Sprint (NYSE: S) was preparing a bid for small rival T-Mobile (NYSE: TMUS).

Even if the rumors are true, it doesn’t appear that Sprint would make an offer until sometime during the first half of 2014.

But, a rumor that likely wouldn’t come to fruition until sometime next year was enough to send the stock nearly nine percent higher on the day—the largest one-day move for T-Mobile in more than one year.

The deal would combine the #3 and #4 carrier by revenue, leaving the combined company still holding onto the #3 spot.

If the deal took place, the combined company would still be relatively small by cell phone company standards. The new company would have roughly 57 million subscribers compared to Verizon’s 95 million, AT&T’s 72 million and comparing it to the world, China Mobile’s more than 750 million.

Related: Technology Analyst Jeff Kagan on Sprint T-Mobile Merger Possibility

Still, even a company slightly more than half the size of the top carrier would have a tough time gaining regulatory approval along with other problems, according to a flurry of reports published over the weekend.

When AT&T tried to purchase T-Mobile, the Justice Department turned down the merger because of the lack of competition it could create. With T-Mobile merging with MetroPCS earlier in the year and Softbank now owning 80 percent of Sprint, there has already been consolidation in the industry that would make a deal like this even more unlikely.

Deutsche Telekom owns a 67 percent stake in T-Mobile and according to Bloomberg, could only sell it’s stake within 18 months of its acquisition of T-Mobile if an offer was made for the entire stake.

There are also technology issues.

Sprint runs a CDMA network similar to Verizon’s while T-Mobile’s network GSM and HSPA+. If you’re not a cell phone techie, simply put, phones made for one network won’t work on the other meaning that a major investment into integrating the technologies is necessary.

Then there’s the fact that both of these companies are small and a merger, while interesting from a financial markets perspective, still leaves a company that isn’t likely to gain a lot of ground against AT&T and Verizon. There’s an Apple/Samsung-style duopoly in the U.S. cell space with AT&T and Verizon. Most people agree that it’s not likely that any merger would so much to change that any time soon.

Disclosure: At the time of this writing, Tim Parker was long Apple and Verizon.

Posted-In: Apple AT&T MetroPCS SoftbankNews Rumors M&A Tech Best of Benzinga


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