Sprint Admits It Needs T-Mobile Merger, Or It's Dead

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Sprint has responded to some regulators who have stated that it does not need the merger with T-Mobile to survive. In what is a pretty damning letter to the FCC, outlining the dire position that Sprint is currently in.

The letter to the FCC basically states that if this merger is not approved, the carrier would likely go under. On the second page of this 47-page letter to Marlene Dortch who is the Secretary of the FCC, Sprint states that it is in a "very difficult situation that is only getting worse." Sprint goes on to spell out all the issues that it currently has. Including the fact that its "network lacks the coverage and consistency that customers demand". Also talking about the lack of low-band spectrum, which is the root of Sprint's issues. And that's one issue that can't be fixed since there is no low-band spectrum available for Sprint to even purchase.

Sprint also notes that because it is losing customers, which is in-turn reducing the money coming in, it is unable to further invest in its network or pay off its debt. Much of which is coming due in the next couple of years. Sprint says that it is "not on a sustainable competitive path." This has been an issue with Sprint for many years, even before SoftBank purchased a controlling stake in the company, back in 2013.

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In this letter, the company is claiming that the it has fundamental problems and is "unlikely to be an effective competitor going forward" unless the merger with T-Mobile is approved. While some regulators may feel the opposite, analysts that follow Sprint and the industry agree with Sprint. In the fact that it desperately needs this merger to be approved. If it's not approved, there's a good chance that Sprint could go under in the very near future. It has already dropped from the third biggest carrier to the fourth, and it's a distant fourth behind T-Mobile now.

This isn't new to Sprint, internally it has been looking for a path forward for many years now. After it failed to reach a deal with T-Mobile in 2017, Michel Combes (now the CEO of Sprint), reported to the Board of Directors on a number of occasions, looking to find the best path forward for the company. In March 2018, Combes presented analysis that stated that a merger with T-Mobile was indeed the best path forward.

Sprint then began to talk to T-Mobile once again in regards to a merger agreement, which was then made official in April 2018. Unfortunately, for Sprint, this merger was made on less attractive terms than just six months earlier. Part of this was due to the fact that T-Mobile was a much larger company than it was in 2017.

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The fact that Sprint is outlining how screwed up the company is, and admitting that there is no profitable step forward for the company, is a pretty big deal. It's something that those in the industry have said for many years. But Sprint would always say the opposite. Stating that their network is improving, they are adding customers, etc. Now this letter to the FCC says the opposite and paints a bleak picture for the future, for Sprint.

This also comes hot on the heels of a report that the merger would be "unlikely" to be approved in its current structure. That caused Sprint's stock to drop 10-percent. Though it's likely that Sprint had this letter ready to go, so that when something like this happened, Sprint could play its hand and hopefully still get the deal approved.