When giant US cable television firm Charter Communications announced that it was not interested in pursuing a merger with Sprint, the number 4 ranked US mobile phone supplier, officials at Deutsche Telekom in Germany sat up and smiled.
The German firm, which owns carrier T-Mobile in the United States, has been holding merger talks with Sprint off and on for months, but the talks collapsed. That prompted Sprint’s corporate parent, Japan’s Softbank, to discuss a merger with Charter. Now that the Charter-Sprint deal is off, might those T-Mobile-Sprint talks now resume?
It’s all part of a poker game of bluff and raises taking place in the US telecommunications industry, which has included Verizon’s eye-popping €72 billion ($85 billion) acquisition of movie and cable firm Time Warner.
“We want to focus on our business and work methodically at our own pace and schedule”
The reason Deutsche Telekom executives were concerned was that a tie-up between Sprint and Charter, with its millions of cable TV and internet customers who could be offered mobile service as part of a cable package, presented a formidable competition threat to the company’s T-Mobile subsidiary, which is the third-ranked mobile phone company in the United States. Now that the deal appears dead, they can breathe a sigh of relief.
“In Bonn and Seattle (home base to T-Mobile) they are laughing themselves silly,” said Roger Entner, head of telecom consulting firm Recon Analytics.
Masayoshi Son, the Japanese billionaire who controls Softbank, is keen to find a partner for Sprint and end the firm’s deepening losses. But in the end he was unable to find financing for his enormous deal, with Charter having a market value of $113 billion and debts of $63 billion.
To buy Charter, Mr. Son would have had to offer a premium to the share price that could have ranged as high 50 percent. Son himself paid a 43 percent share price premium when he scooped up a 70 percent stake in Sprint for $20.1 billion in 2012.
According to sources at Deutsche Telekom, the company is again interested in merger with Sprint, but only as majority owner. Although Mr. Son has a larger percentage of shares in Sprint than Telekom has in T-Mobile, Sprint is a considerably smaller firm, worth $33 billion on the market while T-Mobile is worth $51 billion.
If the two firms did combine, the potential for achieving synergies is substantial. Analysts estimate the combined savings at between $30 billion and $45 billion and their combined strength would be a strong counterbalance to the market leaders, Verizon and AT&T.
John Legere, CEO of T-Mobile, said it was not necessary for his firm, which is very profitable, earning more in the US than Telekom makes in Germany, to achieve a merger to be a success. “We want to focus on our business and work methodically at our own pace and schedule,” he said.
Time does seem to be on T-Mobile’s side. The company has managed a net increase in customers of more than one million in each of the last 17 quarters. And, unlike Sprint, the firm is making a lot of profit for Deutsche Telekom.
So Telekom is watching the poker game from afar with extreme patience back in Bonn. The belief is that Mr. Son doesn’t have a realistic hope to merge Sprint with another firm apart from a marriage wih T-Mobile. The Trump administration is regarded as likely to allow such a linkup, which makes executives keen to do a deal as soon as possible.
Thomas Jahn and Ina Karabasz reported this story for Handelsblatt. Charles Wallace adapted this story to English for Handelsblatt Global. To contact the authors: email@example.com, firstname.lastname@example.org