Sprint and T-Mobile call off merger after months of talks

 

SAN FRANCISCO/NEW YORK, Nov 4 (Reuters) - Sprint Corp and T-Mobile US Inc said on Saturday they have called off merger talks to create a stronger U.S. wireless to rival market leaders, leaving No. 4 provider Sprint to engineer a turnaround on its own.

The announcement marks the latest failed attempt to combine the third- and fourth-largest U.S. wireless carriers, as Sprint parent SoftBank Group Corp, and T-Mobile parent, Deutsche Telekom AG, show unwillingness to part with too much of their prized U.S. telecom assets.

The failed merger could also keep wireless prices low as all four providers have been heavily discounting their cellphone plans in a battle for consumers.

A combined company would have had more than 130 million U.S. subscribers, behind Verizon Communications Inc and AT&T Inc.

"Consumers are better off without the merger because Sprint and T-Mobile will continue to compete fiercely for budget-conscious customers," said Erik Gordon, a Ross School of Business professor at the University of Michigan.

The companies' unusual step of making a joint announcement on the canceled negotiations could indicate they still recognize the merits of a merger, keeping the door open for potential future talks.

The companies said they ended talks because they "were unable to find mutually agreeable terms."

John Legere, chief executive of T-Mobile, said in the statement that the prospect of combining with Sprint was compelling but "we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile's shareholders compared to our outstanding stand-alone performance and track record."

Sprint CEO Marcelo Claure said that even though the companies could not reach a deal, "we certainly recognize the benefits of scale through a potential combination."

Claure said Sprint has agreed it is best to move forward on its own with its assets "including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth."

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T-Mobile - CEO John Legere
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T-Mobile - CEO John Legere
A T-Mobile US Inc. employee transfers data to a customer's new phone at a retail store in Torrance, California, U.S., on Monday, Nov. 4, 2013. T-Mobile US Inc. is scheduled to release earnings on Nov. 4. Photographer: Patrick T. Fallon/Bloomberg via Getty Images
A man uses a cell phone while walking past a T-Mobile US Inc. retail store in Redondo Beach, California, U.S., on Sunday, Nov. 3, 2013. T-Mobile US Inc. is scheduled to release earnings on Nov. 4. Photographer: Patrick T. Fallon/Bloomberg via Getty Images
NEW YORK, NY - APRIL 12: Apple's iPhone 5 is advertised in the window of a Manhattan T-Mobile store on April 12, 2013 in New York City. Following years of waiting to sell the phone, T-Mobile will begin supporting and selling the iPhone 5 on its network starting on Friday. (Photo by Spencer Platt/Getty Images)
NEW YORK, NY - MARCH 23: A T-Mobile store is seen at 7th Avenue and 49th Street on March 23, 2012 in New York City. T-Mobile USA announced they would be eliminating 1,900 call-center jobs in an effort to cut costs. (Photo by Andrew Burton/Getty Images)
NEW YORK CITY - APRIL 19: Pedestrians walk past a retail outlet for T-Mobile in New York City, on Friday, April 19, 2013.
BERLIN - JULY 24: Emblem T-Mobile. T-Mobile International AG is a holding company for Deutsche Telekom AG's various mobile communications subsidiaries outside Germany, July 24, 2013, Berlin, Germany
A T-Mobile retail store.
John Legere, chief executive officer of T-Mobile US Inc., pauses during a Bloomberg Television interview in New York, U.S., on Tuesday, Dec. 16, 2014. T-Mobile US Inc. is allowing customers to roll over high-speed data allotments, in the fourth-largest U.S. wireless carrier's latest marketing push to lure subscribers from Verizon Communications Inc. and AT&T Inc. Photographer: Scott Eells/Bloomberg via Getty Images
T-Mobile US Inc. signage is displayed in the window of a retail store in Washington, D.C., U.S., on Thursday, Oct. 23, 2014. T-Mobile US Inc. is expected to release third quarter earnings figures on Oct. 27. Photographer: Andrew Harrer/Bloomberg via Getty Images
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SPRINT'S ROAD AHEAD

Failure to clinch an agreement leaves SoftBank CEO Masayoshi Son, a dealmaker who raised close to $100 billion for his Vision Fund to invest in technology companies, with the need to find another option for Sprint.

Sprint is in the middle of a turnaround plan and has sought to strengthen its balance sheet by cutting costs. But industry analysts have expressed concern that the company, weighed down with total debt of $38 billion, has few financial options. Even though its customer base has expanded under CEO Claure, growth has been driven by heavy discounting.

Analysts said an end to talks to T-Mobile would leave debt-laden Sprint without the scale needed to invest in its network and to compete in a saturated market.

Sprint has sought to strengthen its balance sheet by cutting costs and mortgaging a portion of its airwaves and equipment.

"To really take the kind of next step from a business that has been stabilized to a business that has been growing is going to require a new more intense investment phase," Mark Stodden, telecom analyst at Moody's, said about Sprint.

T-Mobile is a better position as a standalone company, analysts have said. T-Mobile, controlled by Germany's Deutsche Telekom which owns roughly 65 percent of it, became the first major carrier to eliminate two-year contracts, a shift quickly embraced by consumers and copied by competitors. The company has also badgered rivals with its unlimited data plans.

Deutsche Telekom CEO Tim Höttges said in a statement on Saturday that T-Mobile has a "strong basis for growth in the upcoming years."

MONTHS OF TALKS

Both companies had expressed interest in a tie-up this year. SoftBank was prepared to give up control to do a deal with T-Mobile, sources familiar with the company's thinking told Reuters in February.

But no deal was announced immediately following the conclusion of a ban on merger talks in the spring that was associated with a U.S. government auction of wireless airwaves. Both Sprint and T-Mobile said they were open to exploring other options.

An added wrinkle was Sprint's negotiations with cable companies Comcast Corp and Charter Communications Inc .

A source told Reuters in July that SoftBank was considering an acquisition offer for Charter in a deal where it would combine the cable company with Sprint.

The two companies came close to announcing a merger in 2014 but called it off at the last minute due to regulatory concerns.

Industry executives have said a combined Sprint-T-Mobile entity would have the scale, network and enhanced portfolio of wireless airwaves and a better chance to develop 5G, the next generation of wireless technology.

Legal experts also said earlier this year that it was difficult to predict whether the current administration would be more receptive of a deal.

Industry executives have expressed optimism about the prospect of consolidation. But President Donald Trump has also made populist comments on antitrust and prioritized job creation as a key platform.

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