Sprint, T-Mobile again rumored to be nearing a deal

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According to yet another report, Sprint and T-Mobile a close to agreeing a deal to merge. Or, technically speaking, SoftBank – the Japanese carrier which owns Sprint – is close to agreeing a deal to buyout the majority of Deutsche Telekom’s controlling stake in the Magenta-flavored Un-carrier.

Bloomberg reports that Sprint will offer around 50% stock and 50% cash for T-Mobile, leaving DT with around 15% ownership of the combined Sprint/T-Mobile company. The site’s sources – of course – asked to be left anonymous, and claimed that the agreement could be made official in July.

There is a lot of work to be done behind the scenes before any of the involved parties are ready to announce anything. Sprint and Deutsche Telekom initially had to agree on the price, which they allegedly have. But they still need to decide on management changes and all the legalities that need to take place.

Additional work that remains to be done includes developing a model that forecasts Sprint and T-Mobile’s future independently and together, two of the people said. The projections are key to convincing regulators that allowing a merger is in consumers’ best interests. AT&T Inc.’s $48.5 billion deal for DirecTV has given SoftBank founder Masayoshi Son more confidence that he can make a strong case, two of the people said.

And that’s without taking in to consideration any delays caused by the FCC and Department of Justice, who will both need to agree that this deal would make for a healthier U.S. market.

If the deal doesn’t go through, SoftBank could end up paying between $1b and $3B in compensation to T-Mobile. Similar to when AT&T’s proposed buyout was rejected.

Keep on your toes T-Mo fans. This year could be very interesting.

Via: Bloomberg

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  • wsj

    4 carriers: 2 GSM, 2 CDMA. Until everyone is on LTE, no deal.

    • Nick Gonzalez

      ^This

    • PK

      Wouldn’t we be able to utilize their LTE footprint right off the bat? Its just voice and text that would be no good, which lets be real TMO is ok on that front.

  • D Velasquez

    3 carriers, just like in Japan. What are the chances the new merged company will be renamed softbank?? I welcome softbank if that’s the case and hopefully they could bring their line up here too!!

  • chuey101

    i’m cool with this as long as legere and his crew are new management team. Get sprint execs out the door.

    • Uncarrier Is Dead

      if it does go thru John Legere will be shell of his former self. New owners, new expectations, and goals. Johhny’s job is done, he was trying to drum up numbers for DT to get TmoUS sold.

      • chuey101

        i doubt it, he will have more leverage and more tools to put his strategy into overdrive. New owners have known expectations and goals (take share and make money). Legere’s strategy is their surest bet to achieve that so incentives are still aligned.

        • maximus1901

          His goal is to make money for his boss.

        • Uncarrier Is Dead

          exactly
          only thing softbank wants is to recover what they lost buying sprint

        • chuey101

          whatever we can agree to disagree. Status quo is (high price low service) is the antithesis of their model. What they have built to date is not just fly by night to get sold, it is a sustainable model that they would be crazy to leave behind. It’s not just a model this point, it’s an asset, i.e. part of their brand value. you guys can go around with your glass half empty view, but time will tell who is right. Either way this is win/win. Either legere gets super charged tmo or they get $1bn severance.

          btw there are more ways to make money than jacking prices. How about retention? customer life time value? service? differentiation? marketing? All of these have been improved under Legere, you guys are being overly pessimistic he will change these at the drop of a hat.

        • DirkDigg1er

          Softbank actually bought Sprint at a steal. They also got Clearwire for free.

        • RiP Uncarrier

          Buying anything that forces you to lose money isn’t a steal no matter which way you look at it….
          Until there is profit, it’s money going down the drain….
          If buying Sprint was such a deal then why is Softbank trying to finance anothey wireless carrier buy? Riddle me that….. lol

        • DirkDigg1er

          Lol. The company has increased in value since being purchased last year.

          He may be forced to buy tmo or genuinely want to defeat Verizon. We’ll all find out why at the end of this month.

    • maximus1901

      Sure they’ll be managing sprint and first thing they’ll do is raise prices for TMO subs.
      Why is this so hard for you and everyone else to understand: Legere put in place low prices because he had to so TMO would survive. With only vzw and att as alternatives, he’s gonna go what’s best for TMO-sprint and raise prices.

      • chuey101

        maybe it’s hard to understand b/c it’s not as foregone a conclusion as you seem to believe. Legere is the envy of the industry with his model. It is an asset that is not easy for other carriers to mimic (combination of pricing, brand, technology), not something to just churn and burn once they merge. There are more ways to make money than to simply raise prices.

        In this business, short term prices are meaningless, everything is about sustainability of future cash flows (strong customer acquisition, low churn, high retention). Meaning happy customers. Lower prices make happy customers who stay on your service longer who generate longer cash flows over time. High prices do not, I repeat, do not guarantee a successful cash generation strategy.

        please take your armchair biz strategy elsewhere.

        • philyew

          And yet the 5-year guidance offered by TM talks about targeting 34-36% margin, compared with Verizon which is, as Braxton Carter puts it, “north of 50%”.

          Do you really see the process of combining TM with Sprint allowing them to achieve the 50% target that he describes in a reasonable timeframe without raising prices?

        • chuey101

          depends on what margin you’re talking about, if EBITDA, i.e. before impact of capital expenditures, then yeh I do expect them to get close to 50% in a reasonable timeframe without raising prices. There are two sides to the P&L, a merger with spring would have classic cost synergies, literally two retail stores across the street from each other, twice the marketing cost, twice the overhead related to each of those departments. Cost synergies alone should get them huge margin improvements without touching a single dime on the revenue side.

          If you’re talking operating income (after capex or with the impact of D&A) then no I expect those margins to be lower b/c they will still be in a growth and transition mode as they are in now, building towers, improving infrastructure, and, if the merger happens, transitioning technology. But this is the cost of business and of pursuing a sound long term strategy.
          So I guess TLDR version. Yes they can achieve great margins without ever touching prices b/c there is something called fixed costs and economies of scale working in there favor.

        • philyew

          What proportion of those stores are directly operated?

          We don’t know what the prevailing brand is going to be. In the short term there could be a considerable cost as the result of a rebranding requirement.

          Here’s an interesting conclusion from an article in the Harvard Business Review a few years ago, which confounds the view that concentrating on cost synergies has a significant early impact in post-merger situations:

          “After a merger, managers should ignore the usual advice to strive primarily for improving the bottom line through cost reductions. Instead they should make it a priority to strengthen sales and marketing in order to sustain profitable revenue growth. That’s because revenue growth is necessary for earnings growth, the most reliable engine for driving total shareholder returns over the long term.

          These insights came from our recent study of 270 mergers in various countries and regions. We found that in most cases sales growth had slowed dramatically after the merger—on average, it had dropped six percentage points. (The figures in this article are weighted averages adjusted for industry trends and refer to three years pre- or postmerger.) That decline led to a reduced rate of earnings growth, by 9.4 percentage points, and a consequent reduction in value creation: The firms’ market-capitalization growth decreased by 2.5 percentage points.”

        • chuey101

          First, fair question on directly owned vs not but fact remains synergies exist with a heavily retail focused business. Second, notice the article says revenue growth and not price increase. It is still not a foregone conclusion that one leads to another. In fact revenue growth in this business is more correlated with customer acquisition and retention which actually argues for REDUCING prices in the short term to drive growth a la the etf subsidy program. This is not a monopoly. They can grow revenue without increasing prices because there is share to be gained. Which was my point from the start.

        • philyew

          I’m not saying that other scenarios are not possible, but many people are assuming that Softbank will embrace the philosophy that DT have allowed John Legere to pursue at TM and that simply the presence of Legere as CEO will somehow guarantee the continuation of Uncarrier. I think you need to look at Sprint to see the characteristics to be expected.

          Son has had a year to show an inclination to become more disposed toward the Uncarrier philosophy. It isn’t happening. Instead the FCC just hit Sprint with the largest fine ever levied for their failure to comply with Do Not Call rules. Despite the Librarian of Congress citing liberal unlocking rules to justify reasserting DMCA over cell phone unlocking, Sprint continue to drag their feet and won’t be delivering all new devices capable of domestic unlocking until February 2015.

          This isn’t a failure to deliver the voluntary stuff that’s at the heart of the Uncarrier philosophy, it’s a failure to meet compliance standards…and yet somehow, when they gain the volume to match AT&T and Verizon they will magically transform to a consumer friendly organization? Dream on.

          What I find most disconcerting is the fact that Braxton Carter talks about being able to achieve comparable margins to Verizon’s current levels, if the merger takes place. Does he not realize that the successful outcome of Uncarrier logically has to be that the industry must generally re-align to targets much closer to TM’s? That an industry with its three top vendors achieving 50% margins is doing nothing other than more thoroughly soaking its customers?

        • chuey101

          Look anything is possible so maybe sprint DNA wins over tmobiles. Time will tell. Maybe margins are unachievable due to contraction of pricing overall which is also possible. I think that is probably more likely tho of the two. And on Braxton he has also said, most recently at Jp Morgan investor conference, that this is a scale game and made specific references to the correlation between fixed costs and profitability. Again time will tell!

        • philyew

          It’s what he said at that JP Morgan event that concerns me lol!

          We’ll see how it all turns out, but there’s a reason that a free market economy like the US has had a century of legislation to regulate and discourage the development of highly concentrated markets. It’ll be too late, if this merger is allowed to go ahead and we find out first hand why such rules have been deemed necessary in the first place.

          Nice talking with you.

        • chuey101

          actually was a pleasure. I don’t mind opposing views as long as they are intelligent. We will see what happens!

        • xmiro

          can’t they up their margin by saving on CAPEX and OPEX? Right now both pay for ~100k towers, stores, and staff, post-merger they can remove about half the towers and fire a bunch of people, and close stores

          I seirously doubt prices would go up considering the fact that both T-Mobile and Sprint’s networks don’t even come close to matching Verizon or AT&T on coverage, in fact when it comes to size TMUS and Sprint have almost identical footprint and both cover pretty much only metro areas

        • philyew

          The EBITDA margins that are typically used in the industry to describe relative performance already exclude capital expenditures from the calculation.

          Cell site data is not entirely clear, but we do know that TM operates through approximately 50,000 cell sites, while it was reported last year that Sprint would likely reach around 55-60,000 cell site over this summer. It has 38,000 existing sites targeted for its Network Vision program.

          There are, however, a considerable number of colocations where costs can’t be shut down in the short term. Crown Castle announced in December that they have 8,000 sites which hosted both Sprint and TM, where there is an average of approximately six years and eight years of current term remaining on all lease agreements with Sprint and T-Mobile, respectively.

          Other locations under similar conditions are likely to exist and even if contractual constraints can be overcome, there are still the needs of multiple, disparate networks, using different antennae, to be serviced.

          Bottom line, it will take several years for field operations to offer up the kind of reductions in operational expenditure that you anticipate.

          The retail side may present greater potential for operational savings, but – as I asked Chuey earlier – what proportion of the stores are directly operated? I don’t mean just which are licensed resellers, but also which are operated as TM (or Sprint) stores by a third party? My local TM store looks like a full corporate outlet, but it’s actually operated by a third party. I don’t know what the operating revenue/expenditure model is, but it seems likely that it is done that way because it already limits TM’s operational liabilities. Thus savings from rationalization may not be as significant.

          Merger legislation exists specifically to prevent vendors from being able to use high market concentrations to leverage price increases. The deal would unquestionably raise the market concentration to a point where such a negative effect would be possible. In what way can consumers and federal authorities be reassured that this abuse would not happen?

          CEOs and CFOs simply telling us they aren’t going to do it doesn’t cut it. Telling us that they don’t need to do it because of the potential of cost savings from synergies isn’t going to cut it either.

          And any CFO telling me that we are OK because he can get to a 50% margin without increasing prices is flat out not going to convince me of anything other than that he should NOT be grasping for a 50% margin in the first place at the same time as telling me his company is pro-consumer.

  • pbxtech

    This is BAD. I didn’t notice anyone commented about LTE technology used between the two and I just what to explore that a bit and hopefully get some additional comments. Sprint and TMO are using 2 different LTE technology and they are NOT the same.

    Sprint (TD-LTE) was the reason why Mr. Sonny boy purchase Sprint in the first place.

    TMO on the other used (FD-LTE) and so does ATT and BigRed.

    So what will become of TMO LTE? Probably converted to TD-LTE so that it will be compatible with Softbank.

    • macman37

      There will be no conversion since Sprint more than likely will have a good portion of the AWS spectrum that they should have gotten if their Board wasn’t such a bunch of dipshits from stopping Dan Hesse from acquiring MetroPCS. That in addition in to TMO’s AWS share prior to acquiring MetroPCS. Although they are going to have a total of 3 other LTE Bands: LTE Band 41 {TD-LTE}, LTE Band 26 {800 MHz ESMR} and their primary, LTE Band 25 {1900 MHz PCS}, NONE of these 3 offer the interoperability capability of bringing your phone from 1 of the Big 3 over to use. AWS will since that frequency and the 700 MHz frequencies are what most other carriers are using.

      • pbxtech

        For sure there won’t be a conversion right away, but I can’t see the merge company maintaining both systems – it would definitely eat up profit. Most like TMO’s (FD-LTE) will have to go down the road. He’s main reason in acquiring Sprint is LTE compatibility with Softbank.

        • maximus1901

          You know sprint has fd lte also right?
          And you can’t convert existing fd lte to DT lte because of the band plans that have been in place by fcc

        • pbxtech

          Yup, I see that now – Band 25.

          Weird that they would use both flavor, I wonder the hows the trough-put on those devices. Did know they Spring has that band.

        • pbxtech

          Edit: Did not know if Spring has those bands.

    • DirkDigg1er

      LOL. Sprint’s LTE Bands 25, 26 are FD LTE. T-Mobile can easily adopt TDD support along with 700mhz A spectrum upgrade.
      This explains Sprints LTE http://www.fiercewireless.com/story/sprint-spark-combine-lte-800-mhz-19-ghz-and-25-ghz-will-offer-50-60-mbps-pe/2013-10-30

  • nd5

    Okay.. your prior post was about the company latering discounts to grandfathered customers. This next one is about selling to clearly the worst run cellular provider on the planet. Neither of these indicate a concern for the customer.

    If they sell, that’s just business… but if Hesse is in charge, and they intend to stick with CDMA, then this company is dead to me. I’ll be on AT&T faster than you can shake a stick. And there really isn’t that much of a price penalty in going AT&T anymore.

    You listening Masayoshi Son?

    • maximus1901

      Cricket wireless is pretty good prices and it’s att lte with some limitations on speed.

    • randian

      “there really isn’t that much of a price penalty in going AT&T anymore”

      There will be if TMO is forced to go CDMA, because AT&T would be the only GSM carrier left. Needing a new phone to swap carriers makes it a lot more expensive to leave, so AT&T could raise rates substantially without fear of losing too many customers. CDMA is one of things locking customers into Verizon, which is why they can charge such high prices.

  • zeiferx

    im going to make it very simple. if its announce i’ll let the fcc and the DoJ know all the reasons i have to be against it. But if it gets pass them i’ll be getting my bags ready to jump ship! im not going to stay in a carrier that has change everything just to be on a good position to sell itself to the devil again.
    Not only Verizon and AT&T are bad… sprint is the worst when it comes to customer service and quality of service, if you wanna tst someones patience just make them use their service! SMH

    • Ky

      Unfortunately, we have virtually no other “ship” to jump to. Having only a choice between bad and worst.

  • DisillusionedMobileUser

    Legere, like Humm before him, was brought in with a mission. It looks like he’ll succeed and get a good position in the end. DT sellout jackals would burn T-Mobile to the ground if they could. Screw them!

    • maximus1901

      You are free to raise $32bil to buy TMO from DT. This is a business they don’t have any obligation to you nor you to them.

      • http://about.me/daylondeon Deacon

        and that’s the hard truth. these companies couldn’t care less really as long as the money exchanges hands.

  • Ky

    @PhoneDog_Cam It would be super helpful if you could outline for the reader a general estimate of time table for a merger like this. Who is involved, who needs to review the application and when. The headline grabbing title of this article makes it appear the deal is nearly done. A week from now all of T-mobile will be Sprint’s customers. Obviously that is not the case, so if its 6-12 months process, it would be nice to know.

    • Bob

      Til the actual deal is announced and presented to the fcc there isn’t a time table.
      The party’s involved are already stated in the article.
      “Rumor” is on the headline title
      If you thought you would be a Sprint customer in a week because of merger, you should probably just keep following along and pay attention because there is no way a merger would be completed in a week.
      Mergers take months if not years especially with how much scrutiny this merger is going to encounter.

      • TYLERDERK

        It is not Sprint its Softbank and T-Mobile CEO/Management would be running it Sprint would no longer exist It would become part of TMUS.

        • Bobby

          Considering nothing has been finalized your speaking gibberish…. You have no idea how it will pan out….
          Whoever has the largest share will be running the show
          Sprint is owned by Softbank so your correction is also moot….
          Your opinion is in the majority of us outsiders but doesn’t mean that how the dominos will fall

        • InfDaMarvel

          Actually this has been in talks since the day Son brought Sprint. The basis and idea for the plan has already panned out.

  • Qwerty

    If this goes through I’m gone, I left Sprint for Tmobile with idea of never dealing with sprint again… Sprint is the horrible and more debt isn’t going to make Sprint any better

  • Aurizen

    if the deal goes through what service will be used?

    • David

      Way too early to know, everything is still speculation.

      • Aurizen

        I see, wouldn’t it make sense for it to me T-Mobile sine GSM is better and more advance?

        • chuey101

          t-mo has proper infrastructure in place to leap frog others including ATT, i would be shocked if they dont continue to build out their tech. Also given tmo’s engineers have proven to be head and shoulders above any of the other 3′s teams.

        • DirkDigg1er

          How are they above ATT or Verizon? ATT seems like the most improved brand in the last 3 years.

        • Mexican Food

          Att and Verizon are ahead they just have slower networks because they have a lot more customers.

    • pbxtech

      IF Legere was in-charge, it would be GSM.

      IF Hesse was in-charge, just to screw everybody, it would CDMA.

      • DirkDigg1er

        In either scenario GSM would survive until LTE is completed.

    • xmiro

      GSM. T-Mobile has the better network overall and CDMA is going away as a voice technology. Going GSM would also allow SoftBank customers to roam in the US

  • John Brown

    If this happens, will Owensville Ohio get at least 3g on T-Mo and no more off network roaming on Sprint?

  • John Brown

    I just hope Sprint has learned from the disaster that was Nextel

  • http://www.youtube.com/#/mrjlwilliams J. Williams

    I don’t even care at this point, as long as my plan stays the same. My bill does not change, and the network gets better.

  • DirkDigg1er

    Son is a smart businessman. Offering 17% premium per share to keep break up fee low is a good move. Also by showing interest in both brands he can win over customers. I wonder what strategy will they use next to get approval?

  • cca1984

    If the seal went through, do you think Tmo ( & metropcs) employees would get the Axe or sprint?

    • cca1984

      Deal*

      • Gover4Ever

        A bit of both, just like what happened and is happening with TMO/MPCS

  • tconsultants.

    Sprint.will disappear and.they will.use.the.T Mobile brand.. The. TMOBILE. Brand.catapulted. After.the.un carrier moves Son will.not.change course.

    • Wilfredo Martinez

      It doesn’t matter if Sprint disappears or not. Three big companies isn’t going to be in the publics interest ever.

      • InfDaMarvel

        Ill take 3 over 2 anyday. And ATT and Verizon will overwhelm both Sprint and Tmobile if they are alone

        • Wilfredo Martinez

          What evidence do you have that Sprint and T-Mobile will go out of business if they stay in the market as independent companies ? How can such a thing be proven? I highly doubt we would be left with 2 companies . We have 4 now and 2 of them want to merge just for the sake of it in order to create scale so no way.

        • InfDaMarvel

          I said 3 over 2 (so 3). Which is what you just said in a different way (through merger). And its just an assumption based of the market they control, the profit they they have yet to see. Which still how how many billions of dollars in debt. And one factor on Tmobile side is that their owner has been trying to sell for how many years?

  • mwolverine

    With all the pessimism flying around I’m going to try and be optimistic that someone won’t be buying tmo unless he had a good plan to compete. I can’t see this failing as badly as people think. If DT wants to get rid of tmo so badly, it might be worth having an owner who wants tmo. He’ll be smart enough to know that the tiniest loss in customer confidence will be a disaster in terms of customers leaving for Vzw and att so I trust that they’ll have a good plan in place.

    • Wilfredo Martinez

      DT should stop selling itself to its competition! If they really wanted to get rid of T-Mobile they can easily sell to Dish networks or Comcast or an entity that isn’t in the U.S yet. They obviously do not want to get rid of T-Mobile that badly because they want to keep a 20% stake on the new merged company if this even happens. What DT wants is $ but doesn’t want to work hard with its U.S T-Mobile unit in order to grow. In other words they are looking for an easy way of making $ out of their U.S T-Mobile unit.

      • philyew

        I don’t see anything stopping Dish or any other company from outside the US mobile industry calling on DT and dropping an offer on the table.

        DT will sell to anyone offering the right price, but they have to make the offer to start the ball rolling.

        • Wilfredo Martinez

          Dish has stated before, that they can’t outbid Softbank. DT is going to sell to whoever gives them the best deal. Softbank is negotiating with DT and offering 32 billion, as well as allowing DT to also own a 20% stake within the new “bigger” company, and also offering a break-up fee for 1 billion… What does DT have to lose with such an offer? I am pretty sure Dish and other entities have approached DT but DT is looking for $, not just to sell.

        • philyew

          But DT have a duty to their stockholders to get the best value from this sale. If Softbank offer the best deal, then there is little choice possible.

        • Wilfredo Martinez

          Good for DT they’re doing their duties, that’s great. Too bad that the best value is to sell to the competition, making such deal not in the public’s interest. The FCC is here to protect the public’s interest and together with the DOJ they will block the deal. Because corporations can’t continue to screw consumers especially U.S consumers who’s had enough from monopolies.

        • philyew

          I certainly hope you’re right.

      • mwolverine

        Comcast???? I’d leave in a heartbeat.

        • Wilfredo Martinez

          At least there would still be 4 independent wireless companies competing.

    • xmiro

      everyone’s just yapping away, meanwhile SoftBank nor Deutsche Telecom have even signed anything. They haven’t even done due diligence on each other, or done projections on the likelyhood of regulatory approval or what kind of concessions they’ll have to make in case the government decides to approve with conditions

  • jeremyvbk

    First of all T-mobile will not “buy” sprint. Sprint is a sub name for the Softbank mostly owned US carrier. Softbank is the owner. If a merger happens, Most likely it would be a complete new name, maybe just name it Softbank Mobile. But to those who complain about CDMA you are complaining about details you do not Have facts on. It is easy, shut down the GSM, WCDMA, and CDMA/EVDO networks in 2 years, and Launch An LTE only Network, running VoLTE on all bands. You keep Band 4, Band 25, and Band 41 mainly in cities, and use Band 26/Band12 for most rural areas, improving Coverage at a lower cost. But that plan would reduce cost of running Legacy technology, and can reduce the number of towers in the process. As well as killing duplicate sites with sprint and Tmobile You can keep cost Hikes minimal, and Improve Network stability.

  • Chris Atlanta

    I’ll fkng leave in a heartbeat if Tmo ends up under Sprint or Comcast. In a fkng HEARTBEAT!

  • nanex

    For those that watched the NBA playoffs last night…Did you notice the Sprint Logo and the purple background (T-Mobile like), is this a sign of things to come.

  • TrueCopy

    I shudder at the thought of being a Sprint customer again. It has been years and years, but the customer service was so bad, I couldn’t stand it. As others have mentioned Sprint also has a terrible record with mergers – re:Nextel.

    All that said, I was with TMo back before the AT&T merger debacle, and jumped ship when it seemed like a sure thing and just before it broke apart. I think I’ll stay put this time, and see what happens.

  • Peter x-employee

    I like tmobile and I worked for them till I quit 2 weeks ago..worked for 6.5 years, but the service is complete shit .. Don’t get me wrong I like paying 20&$ for my dealer line. I went to Wisconsin over weekend couldn’t get signal to save my life.. If I got mauled by a fucking bear would suck.. Lol but ya I hope this deal goes thru.. Now that I gotta cancel dealer line I think I’m gonna switch to verizon