U.S. rival Sprint Nextel Corp. (S) today said it’s in talks to receive a “potential substantial investment” from Japan’s Softbank Corp. (9983) A transaction could create an operator financially strong enough to eventually bid for the assets T- Mobile USA is trying to combine with MetroPCS Communications Inc. (PCS), said a person familiar with Softbank’s plans, declining to be identified as the discussions are private.
T-Mobile and Sprint, the fourth- and third-largest operators in the U.S., are looking to strengthen their positions as more consumers adopt data-hungry smartphones. AT&T and Verizon Wireless dominate the market for the high-end data packages required for devices such as Apple Inc. (AAPL)’s iPhone, which Bellevue, Washington-based T-Mobile USA doesn’t offer.
“If Sprint gets a financially strong partner, that would increase the probability of an eventual bid for the joint package of T-Mobile USA and MetroPCS,” creating a strong No. 3 carrier, said Landesbank Baden-Wuerttemberg analyst Stefan Borscheid. “The market would like to see Deutsche Telekom eventually exiting the U.S. at a premium.”
Deutsche Telekom, Germany’s largest phone company, last week agreed to combine T-Mobile USA with MetroPCS after it failed last year to sell the business to AT&T amid opposition from regulators. The agreement with MetroPCS is designed to facilitate a potential withdrawl of Bonn-based Deutsche Telekom from the U.S. market at some point, according to two people with knowledge of the matter who asked not to be named because the discussions are private.
Sprint discussed buying T-Mobile USA last year, people familiar with the matter said at the time. Sprint is currently holding off on an immediate counterbid for MetroPCS to gain time to scrutinize the carrier’s planned combination with T-Mobile USA, people familiar with the situation said this week.
The MetroPCS deal is the latest attempt by Deutsche Telekom Chief Executive Officer Rene Obermann to revive the fortunes of T-Mobile, more than a decade after the German company entered the American market. T-Mobile USA, which has positioned itself as a more affordable alternative to Verizon Wireless, AT&T and Sprint, lost 2.76 million contract customers, or more than 10 percent of its subscriber base, in the two years through June.
Deutsche Telekom rose as much as 2.9 percent to 9.48 euros following reports of Softbank’s talks with Sprint and closed up 1.6 percent in Frankfurt.
In a statement today confirming talks with Softbank, Sprint said it couldn’t assure a transaction would occur and didn’t provide any other details. Softbank, Japan’s third-largest mobile-phone company, said on its website it won’t comment on Sprint.
Deutsche Telekom spokesman Andreas Fuchs declined to comment on the implications of a potential transaction involving Softbank and Sprint.
Will Draper, a London-based analyst at Espirito Santo Investment Bank, said it’s too early to predict the implications of Softbank’s foray into the U.S. market.
“We have very little visibillity regarding Softbank’s strategy,” he said, adding that the Japanese operator also needs to digest other acquisitions.
The Tokyo-based company, the fastest-growing Japanese mobile-phone provider, this month agreed to pay 180 billion yen for a smaller local rival, eAccess Ltd. (9427)
T-Mobile USA CEO John Legere said last week that the MetroPCS deal “signals T-Mobile’s commitment to competing in the U.S. and removes any doubts about whether we are here to stay.”
Deutsche Telekom would own 74 percent of the new business in a deal that pays MetroPCS shareholders $1.5 billion in cash. T-Mobile had about 33 million customers at the end of June, roughly a third of what Verizon Wireless and AT&T have apiece. MetroPCS will add 9.3 million, pushing the total above 42 million. Sprint had more than 56 million customers in its most recently reported quarter.
By merging with a publicly traded company, T-Mobile can get the benefits of an initial public offering without the hassles, Obermann has said, calling the deal an “accelerated initial public offering with synergies.”
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