News

Sprint in frame, as German Government pushes T-Mobile to buy US networks

"People familiar with the matter" think T-Mobile's parent, Deutsche Telekom, may buy another American mobile carrier. The reports were inspired by a German source over the weekend in Der Spiegel. Share prices in possible target Sprint Nextel immediately rose. Slightly.

It seems hard to imagine that just a month ago, Sprint Nextel ceo Dan Hesse was doing a keynote at the CTIA, grandly talking about his plans to be in "pole position in a new industry".

This week's German story was boosted by reports by Mike Esterl and Dana Cimilluca, for the Wall Street Journal, yesterday. The report categorised the likely target  - Sprint Nextel - as a failing network, whose dismally shrinking prospects matched T-Mobile's equally dwindling hopes in the North American market.

Then, a little later, another report in the same WSJ suggested that Sprint and Nextel might split anyway, making the group look even more like random driftwood floating away from the tsunami.

Reaction appears to be mostly speculation about this speculative story. In her blog, Marguerite Reardon questioned whether US regulators would countenance a DT purchase on this scale, even without Nextel.

But the story inspired Nicola Leske and Nikola Rotscheroth at Reuters to quote Deutsche Telekom's chief executive, Rene Obermann, as saying he wants to grow the group's mobile phone business through acquisitions to compensate for a dwindling fixed-line business and (they added) "he has linked his performance to boosting the share price."

Could they stand the WSJ story up? Not really! Asked about Telekom being interested in Sprint Nextel, German Finance Minister Peer Steinbrueck told reporters in Berlin he considered it to be "a rumour, like so much else."

But Jennifer L. Schenker at Business Week took the view that if indeed vultures descended on Sprint Nextel, it would behelpless prey:

"In the past week, Sprint Nextel got some more bad news: Its credit rating was cut to junk by Standard & Poor's (MHP), and a federal appeals court affirmed the U.S. Federal Communications Commission's decision to force the company to vacate 800 megahertz of frequencies by June 26 to eliminate interference with public safety radio systems—a blow that could cost the struggling company $3.4 billion.

Nonetheless, blogger Andrew Ross Sorkin on the New York Times Dealbook, still felt confident enough about Sprint Nextel to suggest that it could fight off any foreign challenge. Or perhaps, it wouldn't be worth buying:

"The two wireless companies use different technologies, Sprint has big problems of its own, and regulators in the United States could take a dim view of a deal that reduces the field of national wireless players from four to three.

The Bloomberg team got no more acknowledged inside info than anybody else did, but did observe that the share price had risen - and appeared to hint that this alone may have scuppered the deal. It quoted Der Spiegel's comment that

"Sprint's share price drop and the strong Euro make the transaction a bargain"

- apparently suggesting that if the price ceased to be a bargain, there would be no sale. Finally, Bloomberg's Cesca Antonelli and Ville Heiskanen quoted Michael Nelson, an analyst at Stanford Group Co. in New York:

"A purchase isn't likely because combining the three different wireless-network technologies the companies use would be difficult," he said. Sprint uses code-division multiple access technology and Nextel's push-to-talk platform, while Deutsche Telekom's T-Mobile network relies on the global system for mobile communications.

And Nelson concluded:

"You really cannot underestimate the level of complexity that that entails,"

while nonetheless recommending (bafflingly) that investors hold on to Sprint shares.  

"There is a significant amount of integration risk,"

he wrote, without suggesting ways forward for Sprint or Nextel without having to leap that particular hurdle anyway. As Bloomberg's David Wilson commented:

"There's a silly season under way in U.S. dealmaking. Takeovers with multibillion-dollar price tags are being talked up and reported on regardless of whether they make much business sense".