“MarketWatch First Take: Sprint, T-Mobile chatter signals weakness”

MarketWatch First Take: Sprint, T-Mobile chatter signals weakness

Posted: 08 Mar 2011 11:41 AM PST

By MarketWatch

SAN FRANCISCO (MarketWatch) — Merger chatter between Sprint Nextel Corp. and T-Mobile USA that surfaced on Tuesday points to what many consider to be an unavoidable fact — that neither company can compete effectively with the AT&T and Verizon juggernauts.

But a deal between the two iPhone-less carriers — who run a distant number 3 and 4 in the U.S. wireless market — does not look like it is going to happen anytime soon, unless Sprint /quotes/comstock/13*!s/quotes/nls/s (S 4.70, +0.22, +4.91%) and T-Mobile parent Deutsche Telekom /quotes/comstock/11e!fdte (DE:DTE 10.04, +0.38, +3.88%) can get together on a rather large stumbling block: valuation.

Sprint in talks for T-Mobile

Sprint and Deutsche Telekom are again exploring options for combining Sprint with T-Mobile USA, but there are hurdles that make a deal unlikely in the near term. Spencer Ante and Peter Kafka discuss with Lauren Goode on digits.

One analyst said Deutsche Telekom is probably looking for about $25 billion, based on recent financial results, for T-Mobile, while the unit may be worth more like $15 billion to $20 billion, according to Bloomberg, which reported the talks. Analysts say T-Mobile lost market share in the fourth quarter.

T-Mobile also faces a spectrum shortage, the airwaves needed for transmitting calls and data. And Sprint is burdened with heavy debt on its balance sheet: $14.7 billion in net debt as of Dec. 31.

Most notable is the fact that such a merger would bring together two companies operating three wireless networks that all use different technologies. Sprint's been here before, and its combination with Nextel has been a disaster that has destroyed more than 80% of the combined company's market value since that deal was announced in December of 2004. Read full report on Sprint-T-Mobile talks.

But it seems clear for both companies that the current status quo is unsustainable. One side clearly leaked news of the talks in order to raise pressure on the other one. Craig Moffett of Bernstein Research told MarketWatch on Tuesday that, for both companies, "doing nothing is a bad option — and merging might be slightly worse."

Not a great position for either firm.

— Therese Poletti

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Sprint Cell Phone

Tuesday, March 8, 2011