Suddenly the proposed deal between Sprint Corporation (NYSE:S) and T-Mobile US Inc (NYSE:TMUS) was off this week, but is that good or bad? Investors seem to think it’s bad, at least for T-Mobile, as its stock has slumped after the news was revealed.
However, not everyone is convinced that it’s a bad thing for the two companies to remain apart. For example, analysts at Credit Suisse noted that it probably means good things for Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s networks business. But that’s not the only reason this may be a good thing. Writing on Information Week, Eric Zeman makes the case for why Sprint and T-Mobile U.S. should indeed remain two separate companies.
Why Sprint and T-Mobile don’t fit
Sprint said the reason it stopped pursuing T-Mobile is because management believed regulators wouldn’t approve the deal anyway. There were plenty of signs that this was the case, so it should come as no surprise that the bid was abandoned. After all, officials However, Zeman thinks Sprint and T-Mobile just don’t fit together.
For example, he notes that they use two different technologies for their 3G service. Of course carriers are shifting to 4G LTE, but it will be some time before 3G is completely abandoned. Just getting past this technological difference could be quite expensive because their wireless spectrum holdings are extremely varied.
He also states that the two companies have entirely different cultures. T-Mobile paints itself as the rule-breaker, while Sprint has set itself up as being more conservative.
Problematic economics
Zeman also believes that the economics of a deal between the two companies don’t make sense either. He said it doesn’t matter just how many lenders were lined up to finance the deal. If the two companies had merged, he said there would have been some big-time concessions that would have to be made. They would have to divest wireless spectrum and customers in markets where the two carriers compete. That would have cut down on any potential benefits of a merger.
Fixing Sprint
And then there is the issue of Sprint itself. Zeman says the company has been lagging behind even T-Mobile in technology deployment and usually finishes last in ratings for network reliability and speed testing. After all T-Mobile and the other carriers had a head start in 4G, as they all threw their weight behind LTE rather than the WiMax technology Sprint tried to utilize. Now Sprint is playing catch-up and must find ways to improve its network.
He adds that Sprint is the only major U.S. carrier to offer unlimited data plans that truly are free, although the plans cost more than plans that are similar at the other three. He says the company must decrease its prices in order to be competitive in the market.
After all, pricing has had a big effect at T-Mobile. The company’s “Un-carrier” campaign gives subscribers monthly payments for devices so that they can update more often and sooner than they would otherwise.
