Sprint on Aug. 6 quietly shelved its plans to buy most of competitor T-Mobile two days after an announcement by the Federal Communication Commission that it was opposed to the two companies joining forces to bid on wireless spectrum in a 2015 auction.
While the FCC’s position was a surprise to no one other than (apparently) Sprint, it served to drive home the fact that getting regulatory approval for the merger was a forlorn hope.
In addition to pulling the plug on the merger, Sprint’s board also decided to get rid of the CEO who was theoretically behind the merger, Dan Hesse. Of course, the merger was Masayoshi Son’s idea and was put into play once the acquisition of Sprint by Japan’s SoftBank had been completed.
But with Sprint’s endless struggles in the wireless market and the realization that it wouldn’t be able to find a quick cure via a merger with T-Mobile, Sprint’s board apparently decided to put an end to Hesse’s troubled seven-year tenure as the wireless carrier’s CEO.
Neither Sprint nor T-Mobile nor even T-Mobile’s parent company Deutsche Telekom had ever officially acknowledged that a merger was under discussion. The same held true today as Sprint didn’t issue a public statement that it was ending discussion of a possible merger with Sprint. However, multiple media reports on Aug. 6 citing unnamed sources said the deal was dead.
Son and SoftBank had pursued the T-Mobile merger for months even after the FCC had discouraged the merger in January. The FCC’s position hasn’t changed, which was made clear by FCC Chairman Tom Wheeler in reaction to the news that Sprint was dropping its bid for T-Mobile. “Four national wireless providers is good for American consumers. Sprint now has an opportunity to focus their efforts on robust competition,” Wheeler said in a prepared statement.
Hesse was CEO of Sprint when some unfortunate events took place, not all of which were his responsibility. But they happened on his watch and customers began abandoning Sprint after repeated failures to implement 4G technology. Even now as the other major carriers in the U.S. are well along to fully implementing LTE nationwide, Sprint is still struggling to bring its Spark LTE online in all but a few metropolitan areas.
As a result, Sprint has been declining in the face of better-equipped competition. Worse, when faced with aggressive marketing by T-Mobile, Sprint customers are leaving in droves, which in turn means that T-Mobile is growing by 1 million subscribers per quarter.
T-Mobile is growing at the expense of not only Sprint, but it’s also taking some subscribers away from AT&T and Verizon. But Sprint’s subscriber loss is so bad that T-Mobile will pass Sprint as the No. 3 carrier sometime in 2015 if today’s trends continue.
In fact, T-Mobile CEO John Legere thinks that milestone could be reached even sooner. “I’m going on record—I predict we’ll overtake Sprint in total customers by the end of this year. Not some day. Not next year. This year,” Legere said Aug. 6 in a prepared statement . T-Mobile has just announced that the company has taken over the No. 1 position in prepaid, beating out the other three major carriers.
Sprint Dumps CEO and Reportedly Shelves T-Mobile Merger Plans
Sprint and SoftBank have chosen Marcelo Claure, who is currently CEO of Brightstar, a Miami-based cell phone distributor focusing on Latin America, to take over as CEO of Sprint. SoftBank acquired most of Brightstar last year, and will buy the rest from Claure when he’s brought on board as CEO of Sprint.
Unfortunately for Claure, Sprint’s downward spiral will be hard to reverse, and while he may eventually be able to turn things around, it’s unlikely that he’ll be able to reverse Sprint’s slide before T-Mobile takes over as No. 3 in the U.S. market.
Now that T-Mobile isn’t going to be acquired by Sprint, the big question is: what’s next? There’s a bid by French wireless carrier Iliad to buy part of Deutsche Telekom’s portion of T-Mobile, but that prospect seems to be going nowhere fast.
Mexico’s América Móvil, owned by billionaire Carlos Slim, has reportedly been interested in making a bid. And of course there’s long-time suitor Dish Network, whose CEO Charlie Ergen, has been interested in buying T-Mobile for some time.
A bid by Dish would have several advantages over one from Sprint, most notably that Dish isn’t a wireless carrier, but rather a satellite television service. Dish has plenty of unused wireless spectrum in frequencies potentially useful to T-Mobile and of course, Dish is a U.S. company, which would bypass a number of potential roadblocks at the FCC.
On the other hand, the FCC is already contemplating another merger between a satellite television provider and a wireless carrier in the proposed deal between AT&T and DirecTV, which currently is in regulatory limbo.
But there’s another question that is rarely asked in all of the discussion about who might buy T-Mobile, and that is, does T-Mobile need to be rescued? And if so, from what? There have been any number of unsourced reports that T-Mobile’s majority owner, Deutsche Telekom, wanted to unload its U.S. subsidiary. But lately DT’s actions haven’t backed that up.
One of the major stumbling blocks that delayed the acquisition of T-Mobile by Sprint before the FCC nixed the deal was the rapid growth in value of T-Mobile. The company’s UnCarrier is credited for generating this rapid growth.
It’s so fast that DT has been dragging its feet on any sale of the company because the value of the deal needs to be renegotiated. This is likely the reason SoftBank and DT were unable to reach agreement on some major details such as when a break-up fee would be payable if federal regulators rejected the deal, which looked increasingly likely.
Right now, T-Mobile is very hot indeed, and that may make DT less interested in a sale. T-Mobile has been reporting record revenues and that is making it appear as if a sell-off or radical rescue attempt may be unnecessary. After all, if the company is making solid profits and is in the process of successful world domination, why interfere?
Right now, unfortunately for Sprint, it’s not T-Mobile that needs saving, but rather the rapidly sinking Sprint. With its LTE network far from built-out, its prices high and its future uncertain, Sprint needs help. The company has a huge commitment from SoftBank to execute a turnaround, but it remains to be seen if Claure is the person to pull it off.