Fast Break: As Of Last Week, Many At Sprint Thought They Were Merging With T-Mobile
This morning’s bombshell news that AT&T would be buying T-Mobile USA from Deutsche Telekom for $39 billion has left a lot of questions. T-Mobile customers want to know what it means for them? AT&T customers want to know what it means for them? Would-be iPhone buyers want to know what it means for them? T-Mobile and AT&T have started addressing those already. One thing not addressed yet: what does this mean for Sprint, the nation’s third-largest carrier?
And it’s an especially poignant question for Sprint because as of last week, many at that company believed they would be merging with T-Mobile, we’ve heard.
Specifically, we’re hearing from a source with direct knowledge of such a deal that Sprint believed they were in the driver’s seat to land T-Mobile. It’s not clear if anything had been formalized or if discussions were still ongoing, but a “desperate” Sprint was said to be putting it all out there to get a deal done. This news echoes a report from three weeks ago by Bloomberg that stated Sprint and Deutsche Telekom were discussing such a deal.
And a few second-hand accounts state that those at T-Mobile USA were also thinking that Sprint was the likely acquirer. T-Mobile USA CEO Philipp Humm’s email to employees about the AT&T deal this afternoon may point to that. “I know this news is unexpected and may be somewhat unsettling, but I am confident that our strong culture and T-Mobile USA Values will help guide us through this process,” he wrote. That wording suggests that the deal with AT&T went down very quickly. And again, it may also speak to a change from the Sprint endgame that many had assumed.
Of course, from a technology perspective, the T-Mobile/AT&T deal would seem to make more sense. Both run a GSM-based network, whereas Sprint has a CDMA network, like Verizon. That said, as both T-Mobile and AT&T have made clear, the main impetus behind this deal is the 4G LTE networks going forward — GSM and CDMA go out the window when those hit.
And while AT&T is already saying they don’t believe government regulators will hold up the T-Mobile deal (what else are they going to say?), they acknowledge that it should take a year for it to complete. The T-Mobile acquisition would give AT&T a combined customer base of about 130 million — surging it into the number one position in the U.S., far ahead of Verizon’s slightly more than 100 million customers. And that means both AT&T and Verizon will now have more than double the number three carrier, Sprint.
A Sprint/T-Mobile merger would have given them around 85 million customers. That would have put them only 10 million or so behind AT&T. Obviously, regulators would have looked more favorably at that maneuver, since it would mean a more level playing field.
But it was not to be. It’s not known why exactly at this point, but Bloomberg’s original report stated that the price may have been the hold up. They cited an analyst saying that a $25 billion offer may be too high a price for suitors. And yet, AT&T’s offer was some $14 billion more — and includes an 8 percent stake in AT&T, and a Board seat. Perhaps that’s how and why AT&T swooped in so fast for the win. Money talks.