Sprint Going LTE Makes Sense, But Not a T-Mobile Merger

Sprint is embracing WiMAX for now, but is considering a change over to LTE for its future next-generation mobile broadband offering, the carrier’s CEO, Dan Hesse, told the Financial Times. Sprint’s comments about a potential move to LTE are also spurring more commentary on a future merger with T-Mobile, as the smaller carrier will eventually have to offer something beyond HSPA+. A merger with Sprint would create a sizeable new carrier but also bring back shades of issues from the Sprint-Nextel deal which ultimately resulted in a $29.7 billion writedown.

Hesse WiMAX consideration isn’t that far-fetched, however — as Stacey notes, WiMAX and LTE  use the same underlying technology and 75 percent of the infrastructure equipment is the same. So there’s enough compatibility to minimize network transition costs. This fact isn’t lost upon Sprint, who as far back as March of last year was reportedly testing LTE gear in what appeared to be a research effort. And Sprint should have the spectrum available since its WiMAX partner, Clearwire, has used the “L” word as well — when Clearwire received $3.2 billion in funding, CEO Ben Wolff said the WiMAX network would be built out with equipment that could support LTE in the future.

So how and why could a merger between Sprint and T-Mobile make sense? T-Mobile needs to think beyond its 2010 strategic plan and its 3.5G bet. By year-end the fourth largest carrier expects to complete a 21 Mbps HSPA+ rollout, which can theoretically support faster speeds of 42- and 84 Mbps, but requires more investment for the fastest speeds. A better strategy may be to partner with Sprint in a transition to LTE, which would create a carrier with roughly 82 million subscribers that rivals AT&T and Verizon in terms of customer base.

However, even if Sprint and T-Mobile joined forces in a leap to LTE, one carrier’s customers or the other would be stuck in a vicious transition that would make managing dual networks as Sprint did after it purchased Nextel look tame. When Sprint merged with Nextel in 2004, it was forced to maintain that carrier’s IDEN network for existing customers — something the carrier still does today even though it expected to cease IDEN support in 2007. A similar merger between Sprint and T-Mobile would mean customer and device management of CDMA, WiMAX, GSM, HSPA+, LTE and EDGE, to name a few technologies.

There’s also no guarantee that Deutsche Telekom would walk its U.S. T-Mobile subsidiary down the aisle for a Sprint pairing. Aside from the more than $21.5 billion in annual revenues that Deutsche Telekom took in last year from T-Mobile USA, the carrier’s 1700 MHz and 1900 MHz spectrum is a valuable commodity. To pave the way for a T-Mobile merger with Sprint, DT would first have to decide to pull up stakes in the U.S. Both T-Mobile and Sprint would then coordinate a joint move to an LTE network — likely for voice and data. And a long-term transition strategy to avoid another Nextel IDEN debacle is required. So while a merger of Sprint and T-Mobile sounds good, it’s not an overnight flip of the switch on devices or handsets.

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