Will Sprint make a mistake by buying T-Mobile?

American telecom service provider Sprint will continue to trail the Tier 1 competition in 2014 despite returning to revenue and post-paid subscriber growth in 4Q13.

Sprint returned to positive post-paid and total subscriber net additions in 4Q13, yet continued to trail far behind the other Tier 1 operator’s post-paid net additions. To maintain post-paid growth, Sprint will need to develop an innovative strategy that will have a similar effect in the wireless market to T-Mobile’s Un-Carrier strategy in order to drive future post-paid growth, said Eric Costa, analyst in TBR’s Networking and Mobility Practice.

Sprint, one of the active LTE service providers in the U.S., is on the path to recovery, yet it will be a long competitive road and it will need to stay innovative to come back from consistent operating and net losses. Network Vision will result in cost savings and improved margins in 1H14, yet Sprint will continue to lag behind the Tier 1 competition in 2014.

Sprint

Network Vision is the other piece of Sprint’s network strategy, which remains on schedule to reach 200 million POPs in LTE by mid-2014 and already has 33,000 sites on air.

Network Vision will provide the company with increased data revenue growth from new LTE customer adoptions, along with cost savings.

Sprint’s short term future revolves around its core strategies of completing the investment phase of Network Vision and retaining post-paid subscribers.

Sprint’s multiple network enhancements it has underway in early 2014 will determine if the operator can re-emerge as a major Tier 1 post-paid threat to AT&T and Verizon. The tri-band LTE service, Sprint Spark, can help the operator make a splash in the wireless market over the next two years by offering the industry’s top network speeds.

Sprint T-Mobile deal analysis

An attempt to merge with T-Mobile would only delay Sprint’s return to consistent post-paid subscriber growth in 2014.

Sprint has been in rumored talks to make a bid on acquiring T-Mobile. This would create a third largest operator aside from AT&T and Verizon in terms of both wireless revenue and subscribers. Sprint recently said it is now rethinking a possible deal, which TBR believes is a smart choice as it will have a hard time getting past regulators. Aside from the regulators, the deal has other drivers preventing it from being a good move for the operator.

The regulators do not want to remove T-Mobile from the market since it is currently growing its market share the fastest among Tier 1 operators. Combining with Sprint may stop T-Mobile’s momentum, which is backed by its successful Un-Carrier strategy.

SoftBank, owner of the majority of Sprint, would be forced to choose between Sprint’s Dan Hesse and the unlimited plan strategy, and John Legere’s Un-Carrier strategy and its attractive Simple Choice plans.

A merger attempt would cause Sprint to fall even farther behind in the long run, as it would focus on getting regulatory approval – which is very unlikely to come – over focusing primarily on future technologies. A merger would likely delay the deployment process of Sprint Spark, the tri-band LTE service, a key part of Sprint’s recovery strategy. In addition, T-Mobile’s and Sprint’s networks are not only different technologies, but also different spectrum bands, meaning Sprint would need to undertake a whole new network modernization process right after it finished shutting down its iDEN network in 2013.

Sprint should remain focused on delivering fast tri-band LTE speeds and completing Network Vision so it can maintain positive post-paid net additions and return to wireless profitability in 2H14, rather than attempt a merger TBR believes has a low probability of getting approved by the FCC and DOJ.

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