T-Mobile (reall Deutsche Telekom) to buy Sprint?

[Clackamas]

T-Mobile parent firm to buy out Sprint? | Electronista

T-Mobile parent firm to buy out Sprint?

updated 09:20 am EST, Fri March 7, 2008

T-Mobile may Buy Sprint



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T-Mobile's head company Deutsche Telekom may consider buying Sprint and shake up the industry as a result, according to an investment note by Merrill Lynch. The financial group claims that economic circumstances may pressure the German phone company into making a move for the American company. Chief among these is a recently introduced unlimited Sprint plan that offers both voice and data. By pushing the prices downward, Sprint may trigger a price war that T-Mobile USA cannot sustain, pushing Deutsche Telekom to acquire Sprint and prevent the carrier from dropping prices beyond where T-Mobile can compete.
Sprint's worsening losses and a weak US dollar may also make for a likely buyout, as it would make any transaction relatively affordable, Merill Lynch analysts say.

Any acquisition of the kind would create a tremendous shift in the US cellular market, which is split primarily between five major carriers that would be reduced to four -- Alltel, AT&T, T-Mobile, and Verizon -- in the event of a merger. The change would also create a difficult transition period for customers of one service or the other, as T-Mobile would have to consider either discontinuing Sprint's CDMA phone network or its own GSM-based service to supply a unified network.

It would also create problems with the iDEN push-to-talk network Sprint inherited from Nextel, which itself is not compatible with either CDMA or GSM but is often used by specific US businesses, such as the construction industry.

None of the involved companies have comented on the report.

 

[Edaze55]

Saw this on the Sprint forums yesterday, but I dont think they had the date stamped into it there.

updated 09:20 am EST, Fri March 7, 2008

really? thats what? 18 months ago? Do you have a link to something more current? or should we just take this for what it is... old news. Cause even the link in the body of the message links back to when Sprint dropped a 99.99 unlimited everything plan.

 

[Deleted User]

I heard about this on NPR this morning, not sure why that date stamp is so off. As of this morning, sprints stock was up about 12% on news of the deal. Not sure how I'd feel about being forced onto GSM if this were to happen... unless they're supplying a comparable phone for free in the deal.

 

[Edaze55]

I did some poking around and found a few current rumors running around about the potential Sprint buyout.

T-mobile To Buy Sprint Rumor, Take 24 | TmoNews - Unofficial T-Mobile Blog - News, Videos, Articles and more

and

Why Comcast & Not T-Mobile Should Buy Sprint

Neither really say much of anything that hasnt already been said. Sprints been hyping up WiMax for a good long while, and has already launched in 3? cities now, with more rollouts by the end of the year. Meanwhile most everyone else is moving to LTE and HSPA. This buyout would make little to no sense what so ever.

The ONLY reason they would even consider this would be, as one of the articles mentions, to stop the 50 dollar unlimited plan of Boost Mobile rather than try and compete with it. Of course, if you bump the price of the plan, you'll lose a good deal of the people that opted for Boost simply for the price of the plan. To me, it would make more sense to just change your own plan rates to be more competitive rather than buy something out just to reprice it at a higher rate.

Buying out Sprint would only make T-Mo 3rd in the US market. A spot that Sprint currently holds now. That gets them close to AT&T but thats it. Plus they would have to maintain 3 different networks for a few years. CDMA, iDEN and GSM.

I hope this just turns out to be a bunch of hot air. Sprint has already had a hard time managing two networks. I dont wanna see what will happen if someone else tries to manage three.

 

[dkaufman1]

I did some poking around and found a few current rumors running around about the potential Sprint buyout.

T-mobile To Buy Sprint Rumor, Take 24 | TmoNews - Unofficial T-Mobile Blog - News, Videos, Articles and more

and

Why Comcast & Not T-Mobile Should Buy Sprint

Neither really say much of anything that hasnt already been said. Sprints been hyping up WiMax for a good long while, and has already launched in 3? cities now, with more rollouts by the end of the year. Meanwhile most everyone else is moving to LTE and HSPA. This buyout would make little to no sense what so ever.

The ONLY reason they would even consider this would be, as one of the articles mentions, to stop the 50 dollar unlimited plan of Boost Mobile rather than try and compete with it. Of course, if you bump the price of the plan, you'll lose a good deal of the people that opted for Boost simply for the price of the plan. To me, it would make more sense to just change your own plan rates to be more competitive rather than buy something out just to reprice it at a higher rate.

Buying out Sprint would only make T-Mo 3rd in the US market. A spot that Sprint currently holds now. That gets them close to AT&T but thats it. Plus they would have to maintain 3 different networks for a few years. CDMA, iDEN and GSM.

I hope this just turns out to be a bunch of hot air. Sprint has already had a hard time managing two networks. I dont wanna see what will happen if someone else tries to manage three.

Your analysis is spot on, I agree with it. These days the cost of losing customers to iPhone/ATT and Verizon's network superiority is something that a powerhouse globally DT looks at as worth the headache.

Tmobile - Brand cache, young, hip, great customer service, home phone option
Sprint - business focused with push to talk, large customer base, wimax

Issue: competing network protocols

I don't know if I love it, but it makes sense to see it happen.

 

[dizzy]

Mergers and acquisitions are done for two reasons: to increase market share and/or economies of scale (think cost savings or synergies.)

The merging (or acquisition) of Sprint would achieve neither of those goals for T-Mobile. Nor does it make sense (as some posters have suggested) that T-Mobile would take this action to avoid a price-war ... on the contrary, if as many have suggested Sprint is a cash-weakened company T-Mobile would want to initiate a price-war to further weaken it's rival by both taking market share and further draining Sprint's cash reserves.

 

[dkaufman1]

Mergers and acquisitions are done for two reasons: to increase market share and/or economies of scale (think cost savings or synergies.)

The merging (or acquisition) of Sprint would achieve neither of those goals for T-Mobile. Nor does it make sense (as some posters have suggested) that T-Mobile would take this action to avoid a price-war ... on the contrary, if as many have suggested Sprint is a cash-weakened company T-Mobile would want to initiate a price-war to further weaken it's rival by both taking market share and further draining Sprint's cash reserves.

The cost to acquire customers/retain customers in a subscription model service is always high. In the case of Tmobile and Sprint, what has been their ability to do that in the face of ATT's iPhone exclusivity and Verizon's network. Both of these other players need to attract more customers as the cost of losing one is very high.

Tmobile could possibly see the cost to acquire a single customer at $X which they normally would get repaid in Y months. And then the consider the cost to acquire Sprint's customers even with a loss of say 33% of them, so a gain of 66% of the customers. If the cost of acquiring Sprint's 66% is less than $X and less than Y months, it would make sense.

And as for a price-war, if Tmobile/Sprint wanted to compete on price they could try, but in reality companies would rather compete on exclusivity of features since you can actually upcharge for those.

 

[dizzy]

I think you have misunderstood the points I was making

Since a T-Mobile acquisition of Sprint would not substantially increase T-Mobile's market share position (ie; make it #1) it isn't a cost-effective move (ie; ROI.) Nor would such a take-over achieve any economies of scale (ie; headquarters are on different continents, they use differing technologies, etc.)

The point I made about price-wars is that service-related companies tend to use that tactic to weaken a competitor not to gain market share. Just as you pointed out, that's because it isn't profitable to gain market share by buying it. But, if your ultimate goal is to acquire a competitor you'd want engage in price-war tactics to weak them (thus lowering their stock price) so you'd pay less for the company.