News
U.S. telco insists it has options but debt might prove to be the sticking point.
Sprint is there for the taking, so why the apparent reticence?
After months of speculation about what kind of a deal could be on the cards for Sprint, and how it might shake up the U.S. market, this week came as something of an anticlimax when one of its potential partners poured cold water on rumours of a possible merger.
Cableco Charter Communications, responding to a Wall Street Journal report last week about a tie-up with Sprint, said it has "no interest in acquiring" the operator.
"I was a bit surprised to see Charter’s announcement," said Sprint CEO Marcelo Claure, during the company’s quarterly investor call on Tuesday. Mainly because "Sprint was never offered for Charter to buy," he said.
Indeed, Bloomberg subsequently reported that Sprint parent Softbank might now try to buy Charter outright and merge it with its U.S. arm. Sources claimed Softbank CEO Masayoshi Son has arranged $65 billion of financing to fund the deal.
According to the report, Softbank originally planned to buy the remaining 16% of Sprint it doesn’t already own, then buy Charter in a cash and stock deal with a view to merging it with Sprint. Softbank would control more than 50% of the new entity.
Bloomberg’s sources alleged that Charter’s board balked at the idea of giving up majority control of Charter and holding a minority stake in a merged Sprint/Charter.
Undeterred, Son is now said to be considering making a move for Charter anyway.
Of course, Sprint hasn’t only been linked to Charter. For most of this year, it has been strongly linked to rival T-Mobile US.
However, despite months of rumours of negotiations between Softbank and T-Mobile parent Deutsche Telekom, a deal has not emerged.
Deutsche Telekom CFO Thomas Dannenfeldt was reluctant to be drawn on the Sprint speculation when discussing his company’s second quarter performance on Thursday.
"I’m not going to comment on Sprint specifically," he said. "There is a fantastic standalone position [in the U.S.] we have right now…On the other hand, we all know there is an upside to intramarket consolidation.
"As we always said, it depends on the specific potential situation."
In this specific potential situation, Dannenfeldt said that carrying out the work to turn potential synergies into actual synergies is an important consideration.
"It depends not only on potential synergy numbers you might have on paper, but also A: capabilities, and B: difficulties you have to integrate and decommission," he said.
In the context of the U.S. market, there is a strong strategic argument for a deal between Sprint and either Charter or T-Mobile.
A deal with Charter would create a converged services provider that would enable Sprint to deliver fixed broadband and TV to customers’ homes. That would place it on a stronger footing versus AT&T and Verizon, and help it to differentiate against mobile-only T-Mobile.
On the other hand, a deal with T-Mobile would significantly bolster Sprint’s mobile customer base and give it access to even more spectrum, which could prove vital in an increasingly-competitive market making strides towards 5G.
However, while the strategic incentives are there, the economic incentives might be somewhat lacking, mainly due to the large volume of debt that any combination between Sprint and either T-Mobile or Charter would take on.
Sprint parent Softbank’s total debt at the end of March stood at around €113.5 billion. That figure includes Sprint’s total debt, which at the end of June, came in at €34.42 billion.
Charter Communications has a hefty €52.01 billion of total debt, while Deutsche Telekom has a net debt of €55.25 billion.
Financing for a potential transaction would pile even more debt onto the combined entity.
A Nikkei report this week claimed that Softbank is also exploring the possibility of merging Sprint with satellite TV provider Dish. That would usher in Dish’s long-awaited arrival in the mobile market and give Sprint some valuable content assets, but it wouldn’t give the latter the fixed-line network that will become critical to mobile operators in the 5G era.
Incidentally, Dish’s debt stands at a less eye-watering €14.52 billion.
Despite the apparent hesitation about actually going through with a deal, Sprint’s Claure remains confident.
"We’re having discussions with everybody," he said.
"We think in the near future, we should be able to strike a deal with one of the different players," he said.
With AT&T seemingly confident it can win antitrust approval for its Time Warner acquisition, and with Verizon getting down to the business of integrating Yahoo into its new Oath subsidiary, the likes of Sprint, T-Mobile, Charter and Dish might soon have little choice but to look for deals that will help them compete.
