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Sprint, T-Mobile call off merger after months of talks

Reuters

A Sprint store logo is seen on a building in Boca Raton, Fla., on March 2016.

ReutersSAN FRANCISCO/NEW YORK (Reuters) — Sprint Corp. and T-Mobile US Inc. said on Saturday they have called off merger talks to create a stronger U.S. wireless company to rival market leaders, leaving No. 4 provider Sprint to engineer a turnaround on its own.

The announcement marks the latest failed attempt to combine the third- and fourth-largest U.S. wireless carriers, as Sprint parent SoftBank Group Corp. and T-Mobile parent Deutsche Telekom AG, show unwillingness to part with too much of their prized U.S. telecom assets.

A combined company would have had more than 130 million U.S. subscribers, behind Verizon Communications Inc. and AT&T Inc.

The failed merger could also help keep wireless prices low as all four providers have been heavily discounting their cellphone plans in a battle for consumers.

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  • Reuters

    A T-Mobile sign on top of a retail store in Manhattan, New York, in September

“Consumers are better off without the merger because Sprint and T-Mobile will continue to compete fiercely for budget-conscious customers,” said Erik Gordon, a Ross School of Business professor at the University of Michigan.

The companies’ unusual step of making a joint announcement on the canceled negotiations could indicate they still recognize the merits of a merger, keeping the door open for potential future talks.

Sprint and T-Mobile said they ended talks because the companies “were unable to find mutually agreeable terms.”

John Legere, chief executive of T-Mobile, said in the statement that the prospect of combining with Sprint was compelling, but “we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile’s shareholders compared to our outstanding standalone performance and track record.”

Sprint CEO Marcelo Claure said that even though the companies could not reach a deal, “we certainly recognize the benefits of scale through a potential combination.”

Claure also said Sprint has agreed it is best to move forward on its own with its assets “including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”

Sprint’s road ahead

Failure to clinch an agreement leaves SoftBank CEO Masayoshi Son, a dealmaker who raised close to $100 billion for his Vision Fund to invest in technology companies, needing to find another option for Sprint.

Sprint is in the middle of a turnaround plan and has sought to strengthen its balance sheet by cutting costs. But industry analysts have expressed concern that the company, weighed down with total debt of $38 billion, has few financial options.

Even though its customer base has expanded under CEO Claure, growth has been driven by heavy discounting. Analysts said an end to talks with T-Mobile would leave debt-laden Sprint without the scale needed to invest in its network and to compete in a saturated market.

Sprint has sought to strengthen its balance sheet by cutting costs and mortgaging a portion of its airwaves and equipment.

Mark Stodden, telecom analyst at Moody’s Investors Service, said about Sprint: “To really take the kind of next step from a business that has been stabilized to a business that has been growing is going to require a new more intense investment phase.”

T-Mobile is in a better position as a standalone company, analysts have said.

T-Mobile, controlled by Germany’s Deutsche Telekom which owns roughly 65 percent, became the first major carrier to eliminate two-year contracts — a shift quickly embraced by consumers and copied by competitors. The company has also badgered rivals with its unlimited data plans.Speech

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