Sprint and T-Mobile call off merger talks after failure to meet terms

By:
James Pearce
Published on:

Collapse of the on again/off again romance between Deutsche Telekom and SoftBank's US units is the latest twist in a long running saga, writes James Pearce

Marcelo ClaureIt’s been the Ross and Rachel of the telecoms merger and acquisitions space. The potential tie-up between Sprint and T-Mobile US as had more twists and turns than your average soap opera romance, but it seems the “Will they/ Won’t they?” over the deal has come to an end, with T-Mobile declaring the merger dead.

Of course, we’ve been here before. In 2014, after months of talks between Deutsche Telekom, which owns T-Mobile, and SoftBank, the majority shareholder in Sprint, the deal was definitely cancelled. At the time, officials kept quiet about the merger talks, but reports claimed the deal was nixed over regulatory concerns.

The election of Donald Trump led to a resurfacing of rumours, as the regulatory environment now appears to be much more favourable for M&A activity in the US. And so, talks between the third and fourth biggest mobile operators in the US resumed, as the companies looked for a route to create a viable third-placed operator able to compete with Verizon and AT&T.

The combined company would have had more than 130 million US subscribers as well as a rich spectrum holding, giving it leverage to compete against AT&T and Verizon.

After months of talks, however, the potential deal has broken down. T-Mobile, announcing an end to the talks, said the two companies had been “unable to find mutually agreeable terms.”

T-Mobile CEO John Legere, who had looked set to lead the combined unit had a deal been struck, explained: ““The prospect of combining with Sprint has been compelling for a variety of reasons, including the potential to create significant benefits for consumers and value for shareholders. However, we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile’s shareholders compared to our outstanding stand-alone performance and track record.”

Reports last week claimed the discussions had stalled over a disagreement about who would control the combined unit. T-Mobile is currently the bigger operator in terms of market share and, under Legere, has seen significant growth. This is compared to last time talks broke down when Sprint was the bigger player.

SoftBank, which controls Sprint, is reportedly reluctant to lose control of the US mobile operator. According to reports from Japan, SoftBank’s leadership told Deutsche Telekom it was walking away during a meeting on Saturday (4 November).

Other reports claim that SoftBank would have loosened its grip on Sprint had Deutsche Telekom agreed to pay more for control of the operation, according to the Financial Times. Either way, DT was set to take the majority stake in the combined unit, but the terms did not suit both companies.

Sprint CEO Marcelo Claure said the company recognised “the benefits of scale through a potential combination” even though a deal couldn’t be struck. However, “we have agreed that it is best to move forward on our own. We know we have significant assets, including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”


So what next?

For T-Mobile, the plan is to “continue disrupting this industry”, said Legere in his statement. That means continuing a run of 15 quarters of continuous growth, he added, while trying to add to its 58 million customer base.

Masayoshi Son

Deutsche Telekom CEO Tim Höttges said in a statement on Saturday that T-Mobile has a “strong basis for growth in the upcoming years.”

SoftBank faces a more challenging market, given the scale of debt at Sprint. But the Japanese giant has already began its response to the failed talks by boosting its stake in the company from its current 82% to “no more” than 85%.

Masayoshi Son, chairman and CEO of SBG and chairman of Sprint, said, “We are entering an era where billions of new connected devices and sensors will come online throughout the United States. Continuing to own a world class mobile network is central to our vision of ubiquitous connectivity. Sprint is a critical part of our plan to ensure that we can deliver our vision to American consumers and we are very confident in its future.”

It has already announced a deal with Altice USA to support the cable operator’s move into the wireless market. Altice said it will use Sprint’s network to provide voice and data services in the country, echoing similar moves from rivals such as Comcast, launching an MVNO on Verizon’s network, and Charter.

Last week, as reports emerged that the T-Mobile/Sprint deal had hit a roadblock, SoftBank was linked to a potential tie-up with cable operator Charter as a potential alternative.

Claure’s statement seemed to imply the US mobile operator could look at other options now that a T-Mobile tie-up is off the table. He said: “As convergence in the connectivity marketplace continues, we believe significant opportunities exist to establish strong partnerships across multiple industries.  We are determined to continue our efforts to change the wireless industry and compete fiercely.  We look forward to continuing to take the fight to the duopoly and newly emerging competitors."

Of course, it’s not impossible to rule out a deal between the two companies in the future. Both are a long way short of Verizon and AT&T in terms of customer numbers (around 145 million and 135 million in the US respectively) meaning the benefits of a combined company are unlikely to go away. This isn’t the first time talks have been canned, with the flirting resumed just a few years later.

For the time being, at least, it seems to the on-off saga between T-Mobile and Sprint is more of a classic tragedy than a romance.