Why Buy Sprint? DT Has a Much Better Alternative

In the aftermath of the AT&T-Mo deal kerfuffle over the past week and a half, lots of commentary has focused on what alternatives Deutsche Telecom AG (ETR:DTE, news, filings) has if it all falls apart – as seems more likely than ever. Yesterday, one piece has DT looking to buy Sprint for $30B in what has to be one of the more loony possibilities.  But why do we have to make things so complicated?  DT has an obvious way forward.

DT wanted to sell out of the US market primarily because it wasn’t prepared to pay up to build out LTE, and even if it was it didn’t have the spectrum. Deals with Sprint didn’t work then because of the incompatible networks, and they still don’t work. But much water has passed beneath the bridge since between Sprint and Clearwire, and now Clearwire is ready to build LTE, if they can just raise the cash. Sprint is eager to build LTE, but analysts doubt its cash needs too.  And here comes DT with a $3B breakup fee almost in hand plus some spectrum and a need to make up some lost time.  They ought to be whistling ‘Santa Claus is coming to town’.

So Clearwire has the spectrum and a platform that will give the LTE buildout a running start, Sprint has part of the cash needed but perhaps not all of it, and T-Mobile has some cash but no spectrum and no desire to get its hands dirty in a US buildout.  DT could simply use a slice of that cash to partner with Sprint/Clearwire for LTE and maybe with LightSquared too if those guys ever get past the politics holding them back.  T-Mobile USA could then just operate their HSPA+ network as-is in the meantime using that extra breakup spectrum to supplement it if needed.

No need for DT to double/triple down on their US investment by buying Sprint and taking on all that risk, better economics from a shared infrastructure to offset the size of Verizon and AT&T, and a reasonably favorable negotiating position (Sprint/Clearwire need it as much as DT does). What’s not to like?  Surely the FCC would be happy, as an infrastructure alliance between #3 and #4 would give them a competitive field that is less duopoly-like.

AT&T would hate it, but AT&T has other spectrum options they could be following up on to solve the one actual problem they face down the road.  But they just might refuse to give up on the merger for longer than they otherwise would in order to forestall such a scenario.

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Categories: Mergers and Acquisitions · Wireless