The hunted becomes the hunter in one analyst's T-Mobile-Sprint scenario
Last week we showed you some top-secret documents that were presented to executives of T-Mobile and its parent company Deutsche Telekom back in 2015. Back then, consulting firm McKinsey suggested that T-Mobile merge with Sprint, but for different reasons than the merger that was announced last year. Back then, the idea of combining with Sprint was to give T-Mobile an increased 30% of the U.S. cellular market allowing it to compete with Verizon and AT&T. The goal now for T-Mobile is to acquire Sprint's 2.5GHz mid-band spectrum to help it enhance its nationwide 5G coverage.
published by Equities.com, Kagan says that first of all, T-Mobile absolutely needs to complete the merger with Sprint. As Kagan puts it, "There are no two ways around this one. They (T-Mobile) simply need to sink their teeth into all the wireless data spectrum Sprint has. That will give them the raw material they need for growth going forward. If they don’t, this will be bad news for both companies. Period."McKinsey's recommendation back in 2015 included a follow-up suggestion that after completing the merger with Sprint, T-Mobile then purchase cable giant Comcast. But times have changed and T-Mobile is now the fastest-growing and most innovative of the four major U.S. wireless operators. Wireless analyst Jeff Kagan weighed in on the possible wheeling and dealing that might revolve around T-Mobile and certain cable companies as soon as next year. In a story
A combined T-Mobile-Sprint could be an attractive acquisition candidate for a cable company
The analyst notes that even if the merger is approved, T-Mobile will remain the third-largest major U.S. carrier behind Verizon and AT&T. He says that while the merger would make them stronger and give them more growth potential, at the end of the day T-Mobile will still be a "distant third." And to make matters worse, Kagan points out that the person responsible for T-Mobile's amazing turnaround, CEO John Legere, is leaving the company in May. The analyst asks whether Legere's departure will halt the amazing growth period that T-Mobile has enjoyed.
Kagan believes that if the T-Mobile-Sprint merger goes through, the wireless industry will see two key events. Dish Network will enter the wireless business, although the analyst isn't sure that Dish will become a replacement for Sprint as the fourth largest major wireless provider. That is the plan that helped convince the Justice Department to approve the T-Mobile-Sprint deal. However, Dish will be entering the business as an MVNO after signing a seven-year deal with T-Mobile and it will take some time for it to build its own 5G network.
Kagan points out that other cable firms could end up replacing Sprint including Comcast Xfinity, Charter Spectrum, Cox or Altice Mobile. He notes that the trio, each with MVNO deals in place, are ahead of Dish with their wireless offerings. Interestingly, some of those firms were mentioned as possible targets for a combined T-Mobile-Sprint in McKinsey's 2015 presentation. And speaking of which, the analyst also believes that Comcast Xfinity could end up acquiring the merged T-Mobile-Sprint. Unlike the way McKinsey presented such a deal, Kagan sees Comcast Xfinity as the acquirer.
Other possibilities mentioned by Kagan include having a third-party company made up of Comcast, Charter Communications and Altice purchase T-Mobile-Sprint. There is a precedent for such a deal. All three cable firms formed a company to purchase wireless spectrum but ended up selling it off to Verizon. And if T-Mobile is not allowed to purchase Sprint, the two wireless firms could end up being bought by separate cable companies.
Next year is going to be an interesting one for the wireless industry. It will all start with the decision expected to be made as soon as next month by U.S. District Judge Victor Marrero who is presiding over the bench trial that will determine the fate of the T-Mobile-Sprint merger.