Here We Go Again: Sprint-T-Mobile Merger Odds Now 55%

Wall Street got a little giddy on Wednesday over Sprint Nextel Corp. (S) after Citigroup raised the wireless provider’s ratings.

Sprint’s shares had risen more than 6 percent by noon Eastern, reaching $4.15.

Citigroup analyst Michael Rollins upgraded Sprint from hold to buy for several reasons. First, he said, it looks as though Sprint will stem some of its subscriber losses over the next six months; the nation’s third-largest wireless operator has bled thousands of users for the past several quarters. Sprint is promoting its products and services better, Rollins said, and improving its customer service, which has been trying to shed its reputation for being notoriously bad.

But there’s another driver – Rollins thinks Sprint and T-Mobile USA will merge within the next year. The probability, he wrote in a client memo, “has risen to around 55 percent.”

There’s been past talk of a pairing between Sprint and Deutsche Telekom’s T-Mobile but nothing has happened. Many observers say such as transaction would be as disastrous as the Sprint-Nextel merger because Sprint runs a CDMA network while T-Mobile uses GSM.

Yet, both companies have been dusted by rivals Verizon Wireless and AT&T Inc., and Rollins said, if Sprint keeps its bad debt and churn levels down, it could be on its way to growth, with T-Mobile’s help.