Reports over the weekend have Deutsche Telecom AG (ETR:DTE, news, filings) is thinking about purchasing Sprint Nextel (NYSE:S, news, filings), and has hired Deutsche Bank to advise it on a potential bid. There have been lots of rumors lately, most of which have been little more than smoke and sometimes less. But this one makes a fair amount of strategic sense, if the two can agree to terms. The price tag would need to be somewhere in the neighborhood of $30B or more, including Sprint’s net debt, so this would be a major deal any way you slice it. Here are some thoughts:
Wireless: In the USA, TMobile lags the field holding the #4 slot in marketshare, just as they did in the UK. There, they are planning a joint venture with #3 – France Telecom’s Orange – which will (hopefully) give them instant scale and rejuvenate their efforts in the country. It is therefore a natural extension of this idea to pull a similar move in the USA, where #3 is of course Sprint which has been struggling to plug its subscriber leaks for some time now. If combined well, the two would still be #3 in scale, but the gap would be quite a bit smaller.
However, it isn’t quite that easy. Sprint is a CDMA shop with iDEN thrown in. TMobile is a GSM shop. That’s three wireless networks that aren’t going to be merged until a national 4G network of some sort is ready for prime time, which probably won’t be until 2011. Now, TMobile would get a piece of clwr and therefore a 4G footprint in the USA, which it will need one way or another. But then it would be WiMAX in the US and LTE in Europe, which would seem to clash a bit.
Wireline: Like other major PTTs, DT has network assets worldwide. But it remains focused on Europe in many ways, serving multinationals based there via its T-Systems unit. Buying Sprint would let them take that business to an entirely new level, as Sprint has a big presence in Asia and of course would give DT a truly major North American presence. I can easily see the combination of the two becoming a major international force if they were integrated well.
But then there are all those government contracts Sprint holds, is the US government going to make trouble for a foreign buyer? Even one based in an allied country?
- What happens to the Ericsson outsourcing contract… How would that fit into a world where DT owns Sprint?
- In a big deal like this would be, what might DT choose to divest to keep it focused? Perhaps Sprint’s fiber network and transport business, but keeping the IP/MPLS layer?
- If they were to choose to build out LTE in the US following a merger, would they divest the Clearwire stake? Could they?
- Sprint still has lawsuits going on with affiliates over the Nextel iDEN network over competing where they contractually shouldn’t. Wouldn’t a merger with TMobile have similar problems?
Any other thoughts from readers would be welcome. Does this merger look feasible to you? Or is it one of those things that look good on paper but not in reality?
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