Sprint breathes a sigh of relief

The carrier clearly had the most to lose if the AT&T and T-Mobile merger had gone through.

By Trefis Dec 26, 2011 12:31PM
Image: Damaged cell phone (© Nick Koudis/Getty Images)AT&T (T) finally scuttled its T-Mobile merger plans, much to the delight of Sprint (S), which has vehemently opposed the deal right from the start.

Sprint welcomed AT&T's move as "the right decision" for customers, as the deal would have created "an undeniable duopoly that would have resulted in higher prices, less innovation and fewer choices for the American consumer." Sprint also lauded the Federal Communications Commission and the U.S. Department of Justice for a job well done.

Had the merger been approved, AT&T would have leapfrogged ahead of Verizon (VZ) as the largest wireless carrier in the U.S., leaving Sprint in an even more distant third place. While Sprint still has its work cut out for it, this is certainly good news for the carrier.

See our complete analysis for Sprint stock here

Sprint had previously filed an anti-competition lawsuit against AT&T in an attempt to block the merger, putting its weight behind the government's concerns that the deal would create a duopoly, drive prices up and decrease innovation in the industry.


Merger death gives Sprint a breather


Realistically, Sprint's motivations were much more self-serving than just looking out for consumers, as it clearly had the most to lose if the deal were to go through. AT&T and Verizon currently have a combined market share of almost 65%, and Sprint has had difficulty competing.


Adding T-Mobile's market share into that figure would surely have made matters worse for Sprint, as it believed that its distant third-place position would keep it from getting the newest handsets.While the company's recent iPhone deal seems to suggest otherwise, it is important to note the unfavorable deal terms that Sprint had to accept from Apple (AAPL) in order to carry the handset.


AT&T Mobile Phone Market Share

While the deal falling through is certainly a disappointment for AT&T, Sprint actually had the most at stake here and is undoubtedly relieved. Not only will Sprint not have to deal with an effective duopoly, but it should also benefit long-term with AT&T having spent so much time and money focusing on the merger, -- not to mention the $4 billion in cash and spectrum it will have to shell out as a break-up fee to T-Mobile parent Deutsche Telekom (DT).


AT&T now needs spectrum more than ever and will be hard-pressed to find large sellers, with Verizon scooping up spectrum assets left and right over the past few months. For all of Sprint's concerns, spectrum is not currently one of them, given Clearwire's massive spectrum position.


Sprint should capitalize on the opportunity


Sprint may be breathing a sigh of relief this week, but that elation is likely to be short-lived, given the company's current financial straits. Sprint's huge bet on the iPhone may help it take some market share, but we are concerned about its impact on margins, especially as it coincides with the LTE network roll-out which will require significant capital expenditure.


Sprint's track record in this regard has been spotty at best, with earlier bets on the Nextel acquisition and Clearwire's 4G WiMax network not panning out as hoped. Although we remain optimistic about the company's long-term prospects with the forthcoming LTE rollout and its Network Vision project improving coverage and reducing roaming costs, the company will struggle to return to profitability in the near term.


Sprint Mobile Capex as percent of Mobile Gross Profits

Our price estimate for Sprint's stock is $4.25, about 80% ahead of the current market price.


Tags: AAPLSTVZ
8Comments
Dec 26, 2011 9:40PM
avatar
WS6 Trans Am is an idiot who doesn't understand the basics of economics. Small carriers have what Warren Buffet calls "barrier to entry". That is, it's very difficult to start an independent telecom company these days due to the fact that infastructure costs (i.e. cost of constructing cell towers, purchasing bandwidth for services, etc) are so astronomically high that it's impossible for even a well-founded small-cap company to pay for them. As such, most small carrier such as Virgin Mobile and Cricket pay a fee to utilize existing infastructure of telecom giants such as AT&T, Verizon, and even Sprint. This means that any new carrrier entering into the telecom market will be a de-facto part of one of the existing telecom giants, and as a result, couldn't hope to become a true competitor. I applaud the FCC's move to oppose what would have certainly been a monopoly had the AT&T merger went through (which would have given AT&T roughly 44% of the telecom market share in the US). Had the merger went through, AT&T would have so much power to negotiate prices that it can eventually force smaller carriers, including Sprint, out of business. This would decrease competition, something that will undoubtfully increase profit margins for AT&T, but also cause higher prices for consumers for worse service, which always happens when competition decreases.
Dec 26, 2011 10:08PM
avatar
All I can say is thank God AT&T was unsuccessful in their endeavor. Not necessarily for Sprint's sake but OURS,  the consumers. AT&T is a rip-off now both concerning their land service and of course their cellphone service. They suck as far as reliable service is concerned and their costs are inflated. The company sickens me with their arrogance. Well  all I can say is, 'Thankfully it worked out in OUR favor for once'.
Dec 26, 2011 11:59PM
avatar

I've heard from more thenn a few iPhone users, who at least when AT&T was the exclusive carrier for it; mentioned more then a little grief with AT&T's network, and dropping calls.  When the whole iPhone vs android debate was going on, and some swore by Apple, this one person for instance was like "how so?  Certainly it's not better when being used as a phone" mentioning all the dropped calls problem.  Not so much due to the iPhone, but rather due to AT&T's piss poor quality....  From more then a few accounts, and more then a few unhappy customers of theirs, I wouldn't use AT&T for cell coverage.

 

Actually, looking at pricing alone, Metro PCS seems to have better deals, though I would have to look at service to compare.  At present, I've got a number through a family member's friends and family program, and with the lines they have, I'm not having to pay for my cell service at present.  That could change however, and AT&T would be out, for me....

Dec 26, 2011 11:47PM
avatar

The FCC is Vince McMahon and the carriers are wrestlers. It's all rigged !!! They put on a good show to make you think you're getting something for your money but the best bargain out there is free wi-fi at McDonald's! You're telling me the government couldn't front the bill for a free satellite to increase network speed and lower prices?

Dec 26, 2011 10:12PM
avatar

I still think Sam Snead was and always will have been the best golfer ever.  He won about twice as many touraments as anyone else.  Sam won about 140 touraments world wide, and the closest is Jack Nickolas with about 80 wins.

 

Something a disgrace, Sam's ""lifetime winnings"" was less than 1/2 million,  yes, less than 1/2 million for all those tourament wins added together.  And, not long ago one single win was almost $12,000,000.   That is a disgrace!!!!!!!!!!!!​!!    

 

I try very hard to not ever buy anything that huge company's sponser such large sums of money.  Such large prize money when many people are starving in this country.  Many people need clothes, and a roof over their heads.   The huge paydays for sports is a disgrace!!!!!!!!!!!!​!!

Dec 26, 2011 8:38PM
avatar

While I think most of what Economics classes teach are total crap because they are never taking everything into considertion when they try to explain how things go I do agree in this case that if AT&T buys out T-Mobile and prices go up a lot of smaller carriers will emerge and take sales away from AT&T AS LONG AS THEY OFFER A COMPARABLE SERVICE!  This will create more competition in the long run that blocking this sale does.  By blocking this sale no new companies will come into this market and force lower prices and more service offerings.  Just look at what has happened with the unlimited Data plans.  They are gone and there has been no real change in the wireless marketplace.  We need some new companies to come in and force them to give back services.  Innovation will always be there no matter if there are 2 players or 50 players because all companies are always trying to 1 up the competition to gain more market share.

Dec 26, 2011 11:43PM
avatar

Didn't Sprint merge with Nextel anyway because they wanted their federal government and military cell phone contracts? I can't remember. I just know Sprint sucks. I only lived 1 mile from "the tower"

and my reception was always one or two bars; horrible. The first day they immorally changed my pricing plan I was getting 4 bars. Was it from all those "wireless business owners" suddenly getting cut off or was it because Sprint juiced up the speed to encourage us to suddenly agree to pay more money? There's gotta be another way.

Dec 26, 2011 11:38PM
avatar

President Obama was blocking this merger because there is no competition left for wireless broadband. T-Mobile had the cheapest prices and everyone else was higher and mysteriously priced exactly equal. I found this all out the hard way two weeks ago when Sprint notified me they were changing the terms of my agreement from an unlimited data plan to a plan that went from $49/month to one costing $79/month. I never noticed the agreement change. What I noticed was my new $500 bill for streaming netflix movies wirelessly. Sprint waived all the charges and even released me from my contract one year early. But what really ires me is they changed my contract only after realizing the t-mobile deal was canceled. They tried to say people were using the plans to run businesses and slowing down the network but the real reason is GREED. SPRINT, I hope you go belly-up. I wish some young tycoon would send a new satellite into space and create some new competition for these entities. Steve Jobs gave pandora's box to the devil when he gave AT&T the iPhone.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
268
268 rated 2
422
422 rated 3
632
632 rated 4
512
512 rated 5
518
518 rated 6
682
682 rated 7
523
523 rated 8
343
343 rated 9
124
124 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
COPCONOCOPHILLIPS9
TAT&T Inc9
DVNDEVON ENERGY CORPORATION9
EOGEOG RESOURCES Inc9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.