Sprints Move to Dump T-Mobile Merger Plans Stuns Industry

By Josh Long

**Editor’s Note: Please click here for a recap of the biggest communications mergers in Q2 2014.**

It could have radically changed the U.S. wireless market, consolidating power with just three mobile giants. Instead, Sprint has named a new leader and axed its plans to potentially merge with T-Mobile, according to multiple news reports.

Marcelo Claure, an executive who founded Brightstar Corp., a subsidiary of Sprint’s parent company SoftBank, was named today to replace Dan Hesse as CEO of the nation’s third-largest wireless carrier. The announcement was made just a day after national media reported that Sprint’s board decided to drop their pursuit of T-Mobile.

A pairing of Sprint and T-Mobile would have given the combined company a more formidable arsenal of resources to compete with leaders Verizon Wireless and AT&T, but U.S. regulators were vigorously opposed to the deal, according to reports.

The Federal Communications Commission today effectively said as much.

“Four national wireless providers is good for American consumers,” FCC Chairman Tom Wheeler said in a statement, commenting on reports that Sprint was no longer pursuing its rival T-Mobile. “Sprint now has an opportunity to focus their efforts on robust competition.”

With the impending departure of Hesse, who has led the company since December 2007 through the shuttering of its Nextel network and a number of acquisitions including the merger with Japan-based SoftBank, the money-losing Sprint must embark on a new path. The 43-year-old Claure, who joined Sprint’s board in January, will begin his new gig on Aug. 11.

“In the short-term, we will focus on becoming extremely cost efficient and competing aggressively in the marketplace,” he said in a statement. “While consolidating makes sense in the long-term, for now, we will focus on growing and repositioning Sprint.”

Sprint and T-Mobile were reportedly in talks to merge for several months. And as recently as last month, Sprint and T-Mobile discussed a potential agreement worth around $32 billion, according to the New York Times, citing unnamed sources. But Sprint realized U.S. regulators opposed the deal, which would have required approval from the FCC and Justice Department. And in a sign of how regulators felt, Wheeler recently circulated a proposal that would have blocked Sprint and T-Mobile from submitting a joint bid for spectrum in an auction next year for airwaves controlled by broadcasters.

Analysts with Cannacord Genuity, the financial services firm, weren’t surprised Sprint abandoned its plan to gobble T-Mobile in light of the regulatory opposition to the deal.

Since 2007, two years after Sprint and Nextel combined in what was later considered a failed merger, Sprint has been bleeding losses. But in the latest quarter that ended June 30, the carrier posted a profit of $23 million, its best performance in nearly seven years when excluding certain items from last year. The company serves 54.5 million total subscribers, far below the customer counts of AT&T (116.6 million) and Verizon Wireless (104.6 million retail connections).

“Although far from surprising, we believe Sprint will once again focus on retooling its competitive conditions and remain a standalone entity,” wrote Greg Miller, an analyst with Cannacord Genuity, in a research report. “We believe an outside bid for T-Mobile US is far more likely than one for Sprint at this time.”

A forthcoming bid for T-Mobile would come at a time when the carrier has been performing extremely well, adding more than 1 million subscribers per quarter in the last several quarters, developing momentum with its popular “uncarrier” strategy that eliminates postpaid contracts.