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If Sprint ever wants to buy T-Mobile, one of them is going to have to fail

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Sprint(s s) may have given up on buying T-Mobile this year, but wireless industry analyst Chetan Sharma believes it’s only a matter of time before the two renew their courtship. A merged Sprint-T-Mobile(s tmus) is inevitable, according to Sharma, but if the two want to consolidate sooner rather than later, T-Mobile will have to stop performing so damn well.

“The path to the eventual marriage might be tortuous and could involve detours but the market dynamics are likely to force them down the aisle,” Sharma told me in an email interview.

Sprint’s timing was horrible this year because a rejuvenated T-Mobile, quarter after quarter, refuted Sprint’s core justification for merger. Sprint chairman and SoftBank CEO Masayoshi Son argued that smaller carriers needed scale to compete against the enormous might of AT&T(s t) and Verizon(s vz) — only by becoming a mega-carrier itself could Sprint level the market.

Source: Chetan Sharma Consulting
Source: Chetan Sharma Consulting

But for the last 16 months, the country’s smallest nationwide operator has been on a tear. It’s led the U.S. mobile market in subscriber growth, luring postpaid smartphone subscribers away from the other three and stealing a good chunk of Sprint’s own prepaid customer base.

In just five quarters, T-Mobile has managed to reclaim nearly all of the postpaid losses during its 15 quarters of decline between 2009 and 2013, Sharma points out in in his newest U.S. Mobile Market Update. By the end of the third quarter, T-Mobile will have fully recovered, erasing that dark period of its history, Sharma said.

In most of those recent quarters T-Mobile reported net losses, raising the question whether its new Uncarrier strategy was sustainable. But regulators were already wary of more consolidation among the Big Four. T-Mobile’s runaway success provided daily evidence that consolidation wasn’t necessary for smaller carriers to compete. Maybe what Sprint needed wasn’t scale, but rather an outspoken and aggressive CEO like John Legere to put it on the right path.

“To be considered a player requiring some regulatory assistance, [T-Mobile] has to probably get back to those levels of losing 300-400K subs every quarter,” Sharma told me.

Source: Chetan Sharma Consulting
Source: Chetan Sharma Consulting

Another possibility is that Sprint’s decline continues under new CEO Marcelo Claure and is lapped by T-Mobile (it’s only 4 million subscribers shy of becoming the No. 3 U.S. carrier). The roles might then become reversed, with T-Mobile buying out a struggling Sprint, Sharma said.

“My long-term thesis is that these two entities will get together one way or another but unlikely under current administration,” Sharma said, but he added there may be many other deals along the way as T-Mobile’s controlling stakeholder Deutsche Telekom is eager to divest. T-Mobile may become the property of another foreign owner (France’s Iliad has already made a bid) before it merges with Sprint, Sharma said.

So Claure appears to be a rather precarious position. He’s been tasked with rejuvenating an ailing Sprint. But Son, Claure’s boss, obviously still has ambitions to buy T-Mobile. If Son really wants to get the two together, Sprint or both companies will need to perform badly.

5 Responses to “If Sprint ever wants to buy T-Mobile, one of them is going to have to fail”

  1. John B.

    All this tmobile hype is exactly that; Hype. It not only scares me to see so many people flocking for free stuff, but the type of clientele that likes the free stuff. Free comes at a price and tmobile will eventually need to balance the books. Under Gary Forsee, Nextel during the transaction to Sprint, tried to give away the house and almost lost its shirt with the no money down and no credit checks. The same type of clientele is flocking to Tmobile. Check out the ads where people are holding tmoblie signs and people kissing Sprint off signs. And with all the hype, we haven’t seen any dramatic changes from AT&T nor VZW under the hype of tmobile. Only mild changes that AT&T and VZW have always made to offset interest.

    And to say that one or both carriers need to fail in order to compete sounds a bit abrasive when we can view the enormous power that the two largest carriers possess. We need a third super power to combat the two largest. Not two weak carriers fighting for distant third and fourth. This would play right into the basic wireless platform that VZW and AT&T have constructed as a long life cartel.

    John B.

    • William Diaz

      Spoken like a Sprint employee… The hype with TMobile isn’t about free stuff. It’s about a fair price point for a fair level of service quality. I see more people leaving Verizon and AT&T in those signs you mention, coming over to TMobile than I see Sprint customers holding those signs. Sprint customers however that do come over are doing so because TMobile not only offers unlimited data, as does Sprint, but a network that is usable for the data itself. They aren’t necessarily these no credit people you mention but rather customers seeking a similar plan they had, but on a better carrier. If AT&T had a decent deposit and unlimited data more would go there I’m sure.

      • John B.

        I’m not a Sprint employee. I am a consumer that is not tied to any employment status within the wireless industry. However, one may accuse you of being a T-Mobile employee by your standards as well. Almost every T-Mobile employee I have heard pitch the company, has used the same argument.

        I was up for contract renewal and gave T-Mobile’s Test Drive a try a couple months ago. While I found the city to be a good experience, I lost signal at roughly 11 miles outside the city limits. At one point it was 8. So, usable network is rather subjective per user. While I don’t know many in my group of friends that have recently tried T-Mobile, the ones I do know of, remained at their carriers of choice.

        I will stick to my post as that AT&T and VZW are losing their least profitable customers. And Sprint really doesnt need these type of customers right now. Sprint is just starting to make a profit after many years losing dollars. To retain customers just for the sake that it has more customers, doesn’t always equate to healthly revenue and profits. Sprint has work to do but, T-mobile giving away the farm is not sustainable long term. This makes for a perfect storm to play into VZW and AT&T’s strategy. How many companies have tried what T-mobile is doing, only for AT&T and VZW to achieve more power? It is easy to cheer for the underdog. Heck, even I was rooting. That is why I gave T-mobile a try. In the end, the cartel will rule. The inheritance of the bell family has been willed to its children.

        John B.

  2. keninca

    When Sprint abandoned its 3G and WiMax 4G networks to re-construct them as LTE, I thought they were trying to fail. They kept charging the full monthly fee, even though their connection speeds everywhere I went were less than 100 Kbps. I wanted so desperately to not use Verizon and ATT for their anti-consumer attitudes, but T-Mo remained the only option. They are taking way too long to re-build their network, so maybe they will fail.

  3. For years, I argued for the merger of these two companies to combat the duopoly that is AT&T and Verizon, but after the last 18 months of watching Sprint consistently fail to execute, I have to disagree with Sharma.

    Sprint is diseased and touching it would set back T-Mobile by years. Instead, I would go after Sprint’s customer base with a vengeance and just invest in taking their customers directly rather than by acquisition. I think it will be cheaper and much better for T-Mobile in the long run.