Sprint CEO Dan Hesse's interview on Monday with the Financial Times has started a new round of speculation that Sprint Nextel is gearing up to be acquired by T-Mobile USA and its mother company, Deutsche Telekom. The statement that started it all was when Hesse said that Sprint would be moving beyond its current WiMax 4G standard to the same LTE that T-Mobile is already starting to build out. This is the most recent series of potential merger rumors between Sprint and T-Mobile, the last coming in 2008 when Deutsche Telekom decided at the time that the 4G standards weren't going to be compatible.
But that was then. Now things look a lot different. The ongoing war for market share between AT&T and Verizon Wireless has siphoned off customers from both Sprint Nextel and T-Mobile. This slow movement of customers away from the third- and fourth-largest wireless carriers, respectively, has only one possible outcome-one way or the other, the final number will be three.
But that doesn't mean that either Sprint or T-Mobile must simply die. For both companies, a better outcome would be to join forces and give AT&T and Verizon Wireless some real competition. But at what price? At first look, the two companies don't look like natural partners. Sprint Nextel is a CDMA carrier that has a big business in push-to-talk services. T-Mobile is a GSM carrier that is strong in the consumer space, but not so big with business, despite some abortive attempts to leverage its GSM-over-Wi-Fi technology into a business phone system.
But if you look more deeply, the differences are less than they appear on the surface. T-Mobile is actually running on a GSM network that was once called Sprint Spectrum. Many of its cell towers are still co-located. Meanwhile, on the Nextel side of the fence, the iDEN communications are really a slightly modified GSM. What's perhaps more important is that the customer base of each company nicely complements the other.
Another significant complement is the fact that T-Mobile is really part of telecom giant Deutsche Telekom. While not a huge player in the U.S., DT is global in scope, and is one of Europe's larger companies. There's no shortage of capital or depth at Deutsche Telekom.
Current speculation is that after a merger, both companies would keep their identity for a while. Sprint customers would still be Sprint customers, but they'd have access to T-Mobile's LTE version of 4G, and its HSPA+ 3G network that's already up and running, and is faster than Sprint's WiMax 4G. In other words, taken together, these companies present a significant force in the market.
In the longer run, if such a merger would take place, it's a fairly safe bet that the combined Sprint Nextel and T-Mobile would slowly drift into being wholly part of Deutsche Telekom's operation, and the Sprint Nextel brand would fade. T-Mobile, after all, is a very strong brand internationally, and outside of the U.S., nobody's heard of Sprint. In addition, the economies of scale that go with having a huge chunk of spectrum, a GSM-based environment and a global presence would be hard to beat. Sharing a common LTE standard is just part of the picture.