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Fitch: Sprint, T-Mobile Merger 'Makes Sense'

Tue, 09/04/2012 - 6:38am
Maisie Ramsay

A top ratings agency says there's still a chance for Sprint to merge with T-Mobile USA despite years of failing to come to fruition.

T-Mobile had long been an acquisition target of Sprint before AT&T threw down a $39 billion offer to buy the German-owned operator, a bid that failed late last year amid government opposition.

Fitch Ratings said in a report released today that more consolidation is needed in the wireless industry, making a merger between Sprint and T-Mobile logical over the long term as the two companies continue to struggle against competition from AT&T and Verizon Wireless.

"Fitch believes that T-Mobile's ability to take share from other operators is limited and that a T-Mobile and Sprint combination makes sense over the longer term," it said, adding that T-Mobile's position as a low-cost wireless provider "is not a recipe for longer term sustained revenue growth."

The transaction is far from certain, however. As evidenced by the block of AT&T's takeover, the FCC and Justice Department may be reluctant to permit another transaction on that scale.

Even if the government allowed Sprint to acquire T-Mobile, combining the two companies would be complicated by the fact that they use different technology for 3G, with Sprint using CDMA and T-Mobile using GSM.

Fitch warned that the government may look askance at the removal of T-Mobile, a low-price competitor, from the market. It also said Sprint's stake in Clearwire could be problematic if it were to pursue a merger with T-Mobile.

"Until these issues become clearer, they will create considerable regulatory uncertainty over the approval process and could impede further consolidation," it said.

Consolidation in the wireless industry is viewed as inevitable as operators look for new ways to grow in a saturated consumer market, and there have been a number of rumors about potential combinations.

Leap recently said all options were on the table to address its poor financial performance, including a merger. Sprint was rumored to have backed out of a merger with MetroPCS at the last minute earlier this year after its board vetoed the transaction. Reports circulated this spring that AT&T held acquisition talks with Leap Wireless International, and that T-Mobile's parent company had considered selling the operator off to MetroPCS.

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