Analyst Cuts Odds of T-Mobile-Sprint Deal Surviving


T-Mobile U.S. and Sprint are expected to be in court again this week defending their long-sought merger from a group of state attorneys general seeking to block the transaction. Though the deal won approval from regulators after several concessions, the AG’s argue that allowing the combination of the country’s third- and fourth-largest wireless carriers will harm consumers by lowering industry competition.

T-Mobile and Sprint did not pursue a merger in order to reduce price competition in the U.S. wireless market, the CEO of Deutsche Telekom, T-Mobile’s majority shareholder, testified on Tuesday in federal court in Manhattan.

 T-Mobile Board Chairman Timotheus Höttges testified that T-Mobile sought to merge with its smaller rival to increase scale and gain wireless spectrum, but denied the goal was to reduce competition, reported Reuters.

Attorneys for the states presented evidence from a T-Mobile board presentation in 2010, when the company first explored a deal with Sprint, that said the merger would have “potential to reduce price competition.” Höttges downplayed the presentation, saying it had been prepared by advisers and was not an official Deutsche Telekom document. 

Barron’s, meanwhile, reports that Raymond James analyst Ric Prentiss hoped to see more states settle with T-Mobile and Sprint before the trial began. That might have taken additional commitments from the carriers to make Dish Network a fourth competitor in the wireless market.  

In a report on Tuesday, Prentiss lowered his prediction of deal approval to 55 percent from 85 percent. He cited the difficulty in Dish becoming a viable nationwide 5G competitor in the near-term. That’s bad news for Sprint especially, which has struggled in recent years, losing money and taking on debt. “In a no deal scenario, Sprint will likely be the most impacted stock in our coverage universe, as it is highly levered with a fundamental business that has stalled over the last 20 months of the merger being reviewed,” Prentiss wrote.

However Prentiss sees T-Mobile coming out on top whether the deal is approved or not due to subscriber growth and earnings growth for several years, reports Barron’s. If there is no deal, T-Mobile won’t have access to Sprint’s portfolio of mid-band wireless spectrum, a key motivation for the acquisition. That could make T-Mobile a bidder for other available licenses in the bands considered most useful for 5G networks. Prentiss also notes that T-Mobile would likely become a more active re-purchaser of its stock should a deal fall apart, and that it has $7 billion remaining on its current authorization.

Prentiss is also bullish on Dish’s opportunity. He sees the legacy satellite business as a “declining cash cow” that can fund the build-out of a wireless network using the company’s existing spectrum holdings. “We expect Dish has been using the time during the long merger review process to talk with potential 5G partners, and will hopefully be ready to hit the ground running in 1H20 under either a deal or no deal scenario,” Prentiss wrote.

The trial is expected to go through December 20.

December 16, 2019             

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