Primetime: Sprint Likely Can't Drag Out Any Merger Talks

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Following the expiration of the merger talks ban imposed by the Federal Communications Commission (FCC), wireless carriers in the US are once again free to discuss any potential consolidations and acquisitions as of late April. Like many of its competitors, Sprint signaled that it's willing to be a part of the upcoming telecommunications merger wave that many industry watchers are predicting, though the company's senior management suggested that the Overland Park, Kansas-based firm won't be the first telecom giant to complete such a deal. Shortly after Sprint announced its mixed quarterly earnings in early May, the wireless carrier's Chief Executive Officer Marcelo Claure said that the company is able "to be very patient" with any possible mergers and acquisition due to the fact that it has a wide variety of options on how to proceed with those ambitions. While predictably confident, that statement doesn't necessarily reflect reality.

Even though Sprint lost the title of the third largest wireless carrier in the United States to T-Mobile, the Kansas company still touts its significant spectrum holdings as a massive reason for optimism, and the firm's latest earnings call following its financial report for the final quarter of the 2016 fiscal year was no different. During the video conference, Masayoshi Son, Chief Executive Officer of Sprint's parent SoftBank stated that the carrier is more than ready for the recently started "unlimited war" in the country due to the fact that its competitors can't guarantee a reliable, growing service whose growth is fueled by unlimited data plans due to the fact that they don't have the necessary spectrum to turn that approach into a sustainable business model. Sprint's representatives have also previously boasted about the firm's spectrum holdings in the context of a potential merger, claiming that the company is an attractive acquisition for virtually any wireless carrier in the country due to its spectrum portfolio that can support a growing lineup of services with little investment. However, investment is where Sprint is lacking, some industry analysts believe, claiming that the company is on the course to be strapped for cash in the near future, which doesn't suggest that it can afford to be patient with potential mergers.

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During Sprint's recent earnings call with analysts, Claure said that the mobile service provider is "open to potentially doing new acquisitions," but given its rising mountain of debt and recent financial performance, many industry watchers are skeptical about Sprint's ability to actually go through with a major acquisition that would significantly turn its fortunes around. The wireless carrier had $30 billion in long-term debt in 2015 and only backed those obligations with $19 billion of equity, indicating that the company is already too leveraged, and the situation isn't improving in a significant manner. The firm will add approximately $11 billion of debt maturities by 2020, according to latest estimates, which is another reason why Sprint would want to look for a more stable merger partner sooner rather than later.

Many investors seemingly agree with this sentiment despite Claure's optimistic announcements that were made during Sprint's earnings call on May 3, with the company stock plummeting by 15 percent in the next few hours following the publication of its financials. The wireless carrier's shares haven't recovered in the next ten days and are currently valued at $7.89, 13 percent down compared to May 2. Industry watchers also aren't optimistic regarding Sprint's performance in the moderate term, noting that the firm's cash flow is still weak, the interest rates on its loans continue to rise, its profit margins keep disappointing, and its user base is only growing in a marginal manner relative to the fact that the company's new unlimited data plans are by far the cheapest in the industry.

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Due to that state of affairs, analysts continue to remain skeptical about the sustainability of Sprint's business model even though the carrier's performance showed some signs of improvements in the last few quarters as the Kansas-based firm managed to increase its revenue and grow its user base with 42,000 postpaid adds. As many of Sprint's assets including its valuable spectrum portfolio and networking infrastructure have already been heavily mortgaged in recent years and the company is still operating at a net loss, a merger may be the only way out of that precarious position; a position that isn't improving in a significant manner and is consequently worrying investors who may pressure the mobile service provider into merging its increasingly leveraged operations with a more consistent company in the near future. Time will tell whether Sprint can and will play the waiting game with its potential consolidation with T-Mobile or another firm, but regardless, it seems that major changes in the wireless industry are on the horizon.