Neither Sprint Nextel Corp. (NYSE: S) nor MetroPCS Communications (NYSE: PCS) will talk about a rumored deal that allegedly died in the boardroom. But an industry analyst said that such a deal would have done little to shake up the wireless market.
Right now, Sprint needs something to boost its game. Its shares continue to limp along at around $2.50, near its 52-week low of $2.10. The company reported a fourth-quarter net loss of $1.3 billion on revenue of $8.7 billion, a year after posting a net loss of $929 million on revenue of $8.3 billion. In a regulatory filing, Sprint said it has reduced its net loss of postpaid subscribers, but if that trend does not continue, the company’s finances and liquidity could suffer material harm.
A deal with MetroPCS could have added 9.3 million subscribers to Sprint’s 55 million customers. More importantly, it would have opened up more spectrum to Sprint. In spite of that potential gain, Robert Rosenberg, president of Insight Research Corp., told us that other options may make more sense for Sprint’s future growth.
“I thought about them incurring debt and not changing their position substantially” with MetroPCS, Rosenberg said. “The real thing that would turn this into a three-way horse race would be Sprint linking up with T-Mobile.” That could end the possibility of a duopoly between Verizon Wireless, part of Verizon Communications Inc. (NYSE: VZ), and AT&T Inc. (NYSE: T).
Acquisition of spectrum, the signal used by wireless devices, is crucial for growth in the industry as data use increases, he said. “You can never have enough spectrum. It’s a constrained commodity.” One way for wireless carriers to address this issue is by splitting cell sites -- a method that boosts coverage for an area by installing more towers. That lets wireless providers reuse spectrum in the area, but it requires significant investment. “You want to postpone that as much as you can. Every time you do that, you have to put up a new tower. It’s a lot of expense.”
Others have tried to consolidate the wireless market (and gain spectrum) by gobbling up smaller rivals, but the tactic has its risks. AT&T paid a $4 billion breakup fee after regulators shot down its bid to acquire T-Mobile USA .
“AT&T took a big licking in terms of the failure to execute that deal,” Rosenberg said. Given the reaction to that offer, he doubts T-Mobile would seek a deal with a player such as Verizon Wireless. That leaves T-Mobile the option of continuing on its own or talking to someone smaller. “Is there synergy between” T-Mobile and Sprint? “I've got to believe there is.”