A woman uses her phone as she walks past a Sprint store in New York's financial district

Bloomberg: SoftBank Has Entered Into Direct Talks To Merge Sprint and T-Mobile

January 20, 2014 - Written By Patrick Northcraft

One of the more interesting developments in the mobile carrier world is how the owners of Sprint, the SoftBank Corporation, have been looking to actually purchase the ‘UNcarrier’ and merge them with the existing Sprint network.  SoftBank has entered into direct talks with T-Mobile’s majority share holder, Deutsche Telekom AG, to facilitate the deal directly.  Deutsche Telekom wants an up-front, all-cash offer for T-Mobile.  However, this is one of the talking points that SoftBank will have with the German telecommunications company, specifically how much of the 67% of their stock in T-Mobile will be paid for by cash and how much by stock.   The UNcarrier, who has a market value of about $26 billion, is currently growing in size, and likewise their value is increasing as well.  As I discussed in a previous article, it would be more appropriate if this situation was reversed, and if T-Mobile was trying to buy Sprint.

According to sources spoken to by Bloomberg, Sprint’s CEO knew that SoftBank was interested in acquiring T-Mobile when SoftBank invested heavily in the carrier.  However, actually attempting to purchase T-Mobile is extremely risky for them.  If we go off history, we see that when AT&T tried to strike a deal with T-Mobile and was shot down by regulatory agencies, they were required to pay close to $7 billion in cash and assets.  According to Bloomberg’s sources, SoftBank could not withstand that level of penalty, as they currently have enough outstanding debt.  SoftBank’s logic behind this gamble is that if Sprint and T-Mobile were to merge, it could create opportunities for massive coverage expansion, and a massive increase in consumer base.  Potentially, this merger could allow for the third and fourth place carriers to have the ability to face AT&T and Verizon directly.

A potential way to get around the inevitable regulatory agency backup would be to include yet another party in the deal.  If Sprint were to allow for Dish Network, a company that has been looking to get into the mobile industry, to have access to their networks, then regulators may be a little more lenient, as a new competitor would be arising just as the other was leaving.  With Sprint and T-Mobile combining networks, and potentially allowing Dish access to their bands as well, competition for the ‘Big Two’ of the mobile industry would increase drastically, especially if after the merger the newly joined company follows the path that T-Mobile is currently on.  Do you have any thoughts on this?  Let us know what you’re thinking in the comments!

Source:  Bloomberg