Sprint Nextel Corp. (S), the third-largest U.S. wireless carrier in the industry, officially opposed the announced merger of AT&T Inc. (T) and Deutsche Telekom’s unit T-Mobile USA.
Sprint requested government officials to block AT&T’s planned acquisition of T-Mobile. Sprint believes that the ambitious $39 billion proposed merger would create a duopoly market for U.S. wireless services. The proposed merger would further cut competition making AT&T and Verizon Wireless, a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc (VOD), the only two dominant players in the industry.
Last week, Sprint raised its worries for the pending merger. Spring cited that the approval of the merger might significantly alter the structure of the overall telecommunication industry. AT&T and Verizon are already the prime wireless providers and, following the T-Mobile buy, the former would be almost three times the size of Sprint.
Sprint said that the two dominant companies would control almost 80% of the U.S. wireless post-paid market. Post-merger, AT&T will become the largest GSM carrier with 130 million subscribers. Verizon is the largest CDMA carrier with almost 100 million subscribers. Sprint has a much smaller subscriber base with wireless customers numbering a more modest 50 million.
Sprint’s share is eroding fast in the U.S. wireless market due to its inability to provide competitive services. It is currently a loss making entity and its shares have lost more than 80% of their value since the announcement of the Nextel merger in December 2004. We believe post-merger AT&T might further hurt Sprint’s profitabilty and shrink its subscriber base.
On the other hand, AT&T affirms that the transaction is in the best interest of both the consumers and the government. The company stated that the U.S. wireless market is intensely competitive and the proposed merger would aid it to acquire pending spectrum licenses that were exhausted due to exponential growth in mobile broadband traffic. Post-merger, the company will be able to bring its 4G Long Term Evolution (LTE) technology to almost 95% of the U.S. population.
We are currently mainatining our long-term Neutral recommendation on Sprint and an Underperform rating on AT&T. Both the companies retain the Zacks # 3 (Hold) Rank over the near term.
SPRINT NEXTEL (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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