Did Someone Say Schadenfreude?

A woman talks on her phone as she walks past T-mobile and Sprint wireless stores in New York in this file photo
Deutsche Telekom still wants a piece of Sprint. Picture source: Reuters

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”

John Legere, CEO, T-Mobile

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: karabasz@handelsblatt.com, jahn@handelsblatt.com

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