4 major hurdles for Sprint, T-Mobile merger

A deal to combine the No. 3 and No. 4 carriers is just in the rumor phase at this point.

By Benzinga Dec 16, 2013 4:01PM
People walk by a T-Mobile store on April 12, 2013 in New York City (© Spencer Platt/Getty Images)By Tim Parker

On Friday, rumors began circulating that Sprint (S) was preparing a bid for small rival T-Mobile (TMUS).

Even if the rumors are true, it doesn't appear that Sprint would make an offer until sometime during the first half of 2014.

But a rumor that likely wouldn’t come to fruition until sometime next year was enough to send the stock nearly 9 percent higher on the day -- the largest one-day move for T-Mobile in more than one year.

The deal would combine the No. 3 and No. 4 carriers by revenue, leaving the combined company still holding onto the No. 3 spot.

If the deal took place, the combined company would still be relatively small by cell phone company standards. The new company would have roughly 57 million subscribers compared to Verizon's (VZ) 95 million and AT&T's (T) 72 million.

Still, even a company slightly more than half the size of the top carrier would have a tough time gaining regulatory approval along with other problems, according to a flurry of reports published over the weekend.

When AT&T tried to purchase T-Mobile, the Justice Department turned down the 

merger because of the lack of competition it could create.

With T-Mobile merging with MetroPCS earlier in the year and Softbank now owning 80 percent of Sprint, there has already been consolidation in the industry that would make a deal like this even more unlikely.

Deutsche Telekom owns a 67 percent stake in T-Mobile and, according to Bloomberg, could only sell its stake within 18 months of its acquisition of T-Mobile if an offer was made for the entire stake.

There are also technology issues.

Sprint runs a CDMA network similar to Verizon’s while T-Mobile's network GSM and HSPA+. If you’re not a cell phone techie, simply put, phones made for one network won’t work on the other meaning that a major investment into integrating the technologies is necessary.

Then there's the fact that both of these companies are small and a merger, while interesting from a financial markets perspective, still leaves a company that isn’t likely to gain a lot of ground against AT&T and Verizon. There's an Apple (AAPL)/Samsung-style duopoly in the U.S. cell space with AT&T and Verizon. Most people agree that it's not likely that any merger would so much to change that any time soon.

Disclosure: At the time of this writing, Tim Parker was long Apple and Verizon.

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