The Georgetown Center for Business and Public Policy

Georgetown Center Executive Director John Mayo Was interviewed by Communications Daily about rumors that telecommunication company T-Mobile is considering a Sprint takeover.

"Many Hurdles Seen in Potential T-Mobile Purchase of Sprint *

"T-Mobile USA’s parent company, Deutsche Telekom, is reportedly preparing a bid for Sprint Nextel.  Sprint would presumably be folded into T-Mobile USA. London's Sunday Telegraph reported that Deutsche Telekom has hired Deutsche Bank to explore a bid for Sprint. A deal would face tough scrutiny and network and financial challenges, experts said. The deal would be the first major wireless merger to go to the FCC under Chairman Julius Genachowski.

"A wireless-industry attorney said T-Mobile’s taking over Sprint has been the subject of a recurring rumor. “If it does get announced, it will be interesting to see whether the FCC under Genachowski will take a tougher line on mergers and what kind of conditions will be imposed,” the attorney said. The commission is considering the
much smaller AT&T acquisition of Centennial (CD Jan 21 p 4).

"Federal regulators probably would be “very, very diligent” in reviewing a Sprint takeover, said John Mayo, a Georgetown University economics professor. The new leaders of the Department of Justice and the FCC have clearly indicated that the agencies are on heightened alert concerning consolidation, he said. “We have two very conscientious and very deliberate regulatory agencies” that would scrutinize a merger very carefully, he said.

"The size of the merger is an issue. Justice Department data on similar industries show that most deals this size have been rejected, said analyst Craig Moffett of Bernstein Research. And Justice and the FCC are already investigating possible anti-competitive behavior in the wireless industry, he noted. On the other hand, a stronger "third place" carrier would gain strong support as a check on "duopolization" of the market by AT&T and Verizon, he said.

"Sprint’s contracts with federal government would make foreign ownership a sensitive issue, since the German government owns about one-third of Deutsche Telekom, said J.P. Morgan analyst Haines Witting. “As such, conditions could be imposed which would diminish potential synergies.”

"Another complication is that Sprint runs a CDMA network, with idea holdings left over from Nextel. T-Mobile is a G.M. carrier. Combining the networks could be more complicated than in any of the wireless mergers that have been completed, sources said. The companies would have to build a single platform to create savings, and they could lose some market share to rivals as they focus on the complicated integration, said Piper Affray analyst Chris Larsen. Further, T-Mobile USA, like its parent, is moving to LTE for its 4G network. Sprint is committed to WiMax.

"John Hodulik of UBS said a deal is unlikely considering the significant negative impact it would probably have on Deutsche Telekom's financials." But Daiwa Securities analyst Michael Kovacocy said a deal would make sense for Deutsche Telekom because it faces an "impending significant deterioration" in its U.S. operations from the dollar's weakness and T-Mobile USA's relatively small size. The revival of the long-standing rumor shouldn’t be dismissed quickly, he said. -- Yu-Ting Wang, Howard Buskirk"

*Full article begins on page 4 of the pdf.