Sprint, T-Mobile Merger Would Create a "Big Three" Carrier Lineup

Both Sprint and T-Mobile have struggled to compete with the much larger carriers AT&T and Verizon. The two companies have been spotted in M&A talks before to address the scale issue. But apparently now T-Mobile parent Deutsche Telekom is in real talks with Sprint about selling its American unit. Previously there had been discussions about T-Mobile investing in Sprint's majority owned Clearwire to gain access to its 4G network.

Last year, to address a similar situation, France Telecom and Deutsche Telekom formed a joint venture in the UK where T-Mobile's assets were merged into the Orange brand. The new Orange UK is the largest carrier in Great Britain.

A similar deal could be struck in the US, with Deutsche Telekom having an ownership stake in a larger Sprint. This would be very much like Vodafone owning a chuck of Verizon Wireless. Alternatively Deutsche Telekom could sell the T-Mobile assets outright. Sprint previously bought pre-paid MVNO VirginMobile USA but maintains the separate VirginMobile brand.

Right now here's what the four major US carrier subscriber numbers look like:

  1. AT&T: 95 million
  2. Verizon: 94 million 
  3. Sprint: 49 million
  4. T-Mobile: 34 million 

A Sprint-T-Mobile merger would create a combined subscriber base of 83 million, which could rival AT&T and Verizon. There are technology challenges, GSM and HSPA vs. CDMA and WiMax, but those would not be insurmoutable.

Sprint recently stopped the bleeding of subscribers with aggressive pricing, better customer service and an improved array of (mostly Android) handsets. The company, however, is still smarting from its value-destroying merger with Nextel a number of years ago. So there is likely to be some caution in pursing T-Mobile. 

Still Sprint feels pressure to grow and this is a way to do it quickly. It's unlikely that the carrier could grow much larger on its own. Alternatively Sprint could go after some of the smaller providers that still exist in the market, such as MetroPCS or Cricket. Either way there is surely more consolidation to come. 

My guess is that we will see a Sprint-T-Mobile transaction, which would pave the way for a "big three" carrier market in the US.