Sprint Pulls Out of Secret MetroPCS Deal

You might think MetroPCS (NYS: PCS) is really doing something right these days if Sprint Nextel (NYS: S) was trying to buy it. Or, looking at it with a more cynical eye, Sprint must have been more than a little desperate to want to blow a reported $8 billion on acquiring the second-tier telecom. Wouldn't that be money it desperately needs to build out the LTE Advanced network that Sprint CEO Dan Hesse went wild about last fall?

Well, it doesn't matter now. That deal, which Sprint had been pursuing during secret talks with MetroPCS, has been nixed by Sprint's board of directors, according to Bloomberg. The board apparently found the 30% premium that the deal included a bit too much to swallow.

Does this mean Sprint's board of directors has lost confidence in Hesse running the show? His push to get the iPhone into the carrier's arsenal of smartphones did increase subscribers, but at quite a cost. The $15 billion four-year deal it made with Apple is pricey enough on the surface, but the twist of the knife is that the more iPhones Sprint's manages to sell, the thinner its profit margins. To be fair, the iPhone paradox is not just a Sprint problem.

The company sold 1.8 million iPhones and managed a net gain of 1.6 million subscribers in the fourth quarter of 2011, but with that came an OIBDA of 9.5%, down from a Q4 2010 OIBDA of 16%.

Chris King, an analyst with Stifel Nicolaus & Co., told Bloomberg, "It certainly indicates a different line of thinking between Dan Hesse and his board." This is not encouraging for "Hesse's future at Sprint," he said.

Sprint is a distant third in the national wireless carriers' hunt for subscribers, with 55 million. Compare that to Verizon's (NYS: VZ) 102.2 million, and AT&T's (NYS: T) 103.2 million. Sprint devouring MetroPCS would have added another 9.3 million customers.

Remember this?
We all know that AT&T lost out on its bid to acquire T-Mobile because of antitrust concerns raised by the Department of Justice and the Federal Communications Commission. But just before those companies signed that deal last March, it was thought that Sprint was the one that was going to be buying up T-Mobile. AT&T's $39 billion deal, though, mightily trumped Sprint's resources, and the rest is history. But if that deal had been made, giving Sprint an additional 34 million subscribers, antitrust arguments wouldn't have held as much weight, and the wireless landscape could have had much more parity.

The latest rumor du Sprint, according to Chris King in his Bloomberg interview, involves it next making a move to acquire MetroPCS' direct competitor, Leap Wireless (NAS: LEAP) , and its 5.5 million customers. Every little bit helps.

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At the time thisarticle was published Fool contributorDan Radovskyowns shares of AT&T. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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