Tuesday, September 15, 2009

Sprint-T-Mobile Merger Could Hit Static In D.C.

A report in the U.K.'s Sunday Telegraph that Deutsche Telekom AG is considering buying Sprint Nextel sent the U.S. carrier's stock surging on Monday, up 11% yesterday afternoon. Citing unnamed sources, the article said the company could make a bid for Sprint in the next few weeks.

The merger would give fourth-ranked carrier T-Mobile and third-largest Sprint a combined 78 million U.S. mobile customers and position the new entity as a more formidable competitor to Verizon Wireless and AT&T. At least one analyst welcomed the deal as beneficial to the entire wireless industry because it would mean less price competition.

"There's just too many cooks in the kitchen in the U.S. wireless market right now, and the logical route to consolidation is a combination of Sprint and T-Mobile," Craig Moffett, an analyst at Sanford C. Bernstein & Co. told Bloomberg. "This is an industry that is calling out for consolidation." But news of a possible T-Mobile-Sprint merger comes at a time when the government is looking broadly into competition in the wireless industry. The Federal Communications Commission last month began a formal inquiry into areas such as exclusive deals between handset makers and carriers, wireless billing practices and whether current conditions in the wireless market allow for new entrants.

The major carriers have opposed increased regulation in large part on the grounds that there's already robust competition in the wireless market, with consumers have a choice of four or five providers in a given market. But the merger of two of the four biggest U.S. carriers would undercut that argument, leaving only three national operators. Given the heightened scrutiny the wireless industry is already under in Washington, it doesn't seem regulators or Congress would look favorably on such a deal that would further limit competition. So even if Wall Street is cheering the proposed match, don't expect the deal to get a warm welcome in the capital if it comes to that.

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