Rumors by an anonymous source reported by BusinessWeek are revealing that two of the top four U.S. wireless providers are considering a merger. This would combine the third- and fourth-place wireless carriers into one entity and could give both companies a fighting chance against the likes of AT&T and Verizon. It would impact consumers heavily and reduce competition in the States further.
If true, the first question is over the value of T-Mobile USA. While Deutsche Telekom might be interested in selling the entity, getting what they believe it is worth might prove to be difficult:
T-Mobile USA may be worth $15 billion to $20 billion, according to Michael Kovacocy, an analyst at Evolution Securities in London. Sprint’s market value was $13.6 billion as of yesterday’s close.
Deutsche Telekom may be disappointed in the price an acquirer is willing to offer, Kovacocy said in an interview. Even though the company may expect about $25 billion, given the unit’s earnings performance, buyers may want to pay less because of customer losses, he said.
The second question is why?
T-Mobile USA operates on a GSM network technology while Sprint utilizes CDMA networking technology. These network technologies are different, thus an acquisition would leave both companies with competing technologies, negating one of the primary reasons for a merger — a better network. The combined entity would be forced to invest heavily in the future of one of these technologies, and it gets even more complex when you consider the 4G technology investments and more.
Deutsche Telekom might be better positioned to compete in the U.S. market if they do merger with Sprint. The terms of the deal are rumored that Deutsche Telekom would control 50% of the combined entity. But from an outside view looking it, it seems like the merger would be costly in the beginning. But in the long term, it might prove beneficial for Deutsche Telekom, one of Europe’s largest mobile providers.
But there are other options on the table, including an investment in wireless spectrum from Clearwire Corp.:
T-Mobile USA is also discussing buying wireless spectrum from Clearwire Corp. as an alternative to a merger with Sprint, two people said. Deutsche Telekom’s Hoettges said last month that buying U.S. wireless spectrum from Clearwire is only one option for the German phone company. He ruled out an outright sale of T-Mobile in the U.S.
Either way, this is huge news for every wireless consumer in U.S. This could have a serious impact on the pricing of wireless data in the future, as less competition would mean fewer incentives to reduce pricing (and Verizon Wireless service is already expensive enough).