¶ … Mobile-Sprint Merger
A merger between T-Mobile and Sprint could produce shareholder value for both companies because both companies are underperforming as stocks and both companies' fortunes rest on the prepaid smartphone market. Both corporations trail market share leaders AT&T and Verizon, with Sprint 3rd and T-Mobile 4th.
Many believe that if these companies do not make a major move soon, they could be squeezed out of the market. Deutsche Telekom has recently ruled out an outright sale of T-Mobile USA, but has indicated possible interest in a partnership.
Reasons to Merge
Both Sprint and T-Mobile have been left out of the iPhone bonanza are being squeezed into lower end of the market, despite their recent technological investments. However, the smartphone market is set for astronomical growth and each company must survive until the smartphone pie gets significantly bigger.
Aside from smartphones, the most promising growth opportunities right now are in the prepaid market, which is being aggressively pursued by T-Mobile, Sprint, and Verizon, along with a number of smaller prepaid specialist carriers. The best entree into smartphone contendership is through the prepaid smartphones. Largely directionless since the arrival of the smartphone, their best shot now is to concentrate their resources towards an area which the market leaders are too tied up to pursue in force.
Synergies
Sprint has technology to spare while T-Mobile has failed to prepare its infrastructure for smartphones and high-volume data transfers.
Sprint and T-Mobile have common goals in the prepaid smartphone market. Sprint has already bet on the prepaid smartphone market as the next area of major growth and it has the technological infrastructure to handle major growth.
T-Mobile has significant experience in the prepaid phone market and discount phone market.
Both companies have relationships to Android smartphone manufacturers, such as HTC, Samsung, and Research In Motion.
Their merger might give them the leverage to land more exclusive carrier deals for certain phones. Also, T-Mobile has a long-standing relationship with phone manufacturer Nokia and could capitalize on opportunities presented by Nokia's new agreement to produce Windows 7 smartphones exclusively.
Landing an exclusive-carrier agreement for some or all of Nokia's Windows 7 phones would provide T-Mobile-Sprint with a customer base and product differentiation.
Sprint's impressive reputation for customer service would synergize with T-Mobile's own reputation for customer care and will help T-Mobile in dealing with traditional perceptions of poor coverage and its recent spectrum challenges.
Operation Cost Reductions
T-Mobile, which already has a reputation for poor service, is undergoing continued service challenges, including inadequate infrastructure to sufficiently handle smartphone data transfer. T-Mobile does not have enough spectrum to accommodate the growing demands of smartphone users and will need to buy more spectrum from a 3rd party, such as Clearwire, which is owned by Sprint.
T-Mobile's Recent Performance
T-Mobile is a subsidiary of Deutsche Telekom AG, which saw a 0.08% decrease in share value from $13.30 in Sep. 2010 to $13.29 in Mar. 2011. DT's loss for the 4th Quarter 2010 ending Dec. 31 increased to €582 million ($800.1 million) from a $4.1 million loss a year ago. Total sales in the quarter fell 4.5% to $21.4 billion.
T-Mobile USA may have harmed DT's performance. In the 4th Qtr 2010, T-Mobile has lost 318,000 contract customers.
T-Mobile's fourth-quarter profits fell 12.4% to $268 million, while its service revenue rose less than 1% to $4.7 billion. T-Mobile finished 2010 with revenue of $5.36 billion -- down just one percent from 2009 -- but the fourth quarter was particularly hard on the company, with net income down to $268 million -- a 12% decline compared to a year ago.
T-Mobile's Strengths
T-Mobile can offer proven 4G-level speed immediately with its HSPA+ technology. Many phones branded as 4G, such as the iPhone, fell well short of 4G-level speed. Although HSPA+ technology is not true 4G technology, it has achieved the closest performance to true 4G speed so far.
T-Mobile carries cheaper smartphones and is considered the most affordable carrier among all of the major carriers. This is an opportune position because of the emergence of low to mid-range Android-operated smartphones, which are cheaper than iPhones but offer similar appeal.
T-Mobile has natural strengths in the prepaid market through its significant customer base and proven pricing strategies.
T-Mobile's Weaknesses
Infrastructure Issues -- Inadequate spectrum
T-Mobile holds the smallest market share of the major carriers: 4th place behind AT&T, Verizon, and Sprint.
T-Mobile, a late entrant into the smartphone market, is lagging behind its competitors in the smartphone market.
Sprint's current stock performance
Sprint saw a 1.69% increase in stock value from $4.14 in Sep. 2010 to $4.21 Mar. 2011.
Sprint's strengths
Sprint continues to invest heavily in new technologies and is well positioned for the next generation of wireless technology. Sprint chose WiMax as its 4G technology whereas AT&T and Verizon have chosen LTE. However, Sprint has not ruled out a possible adoption of the LTE standard or the WiMax2 standard.
Sprint owns 54% of broadband WiMax provider Clearwire, which gives it great capacity for expansion and leverage against competitors/partners.
Sprint is making rapid gains in the prepaid market, increasing its share from about 1% in 2008 to 4% in 2009 through its acquisition of Virgin Mobile.
Sprint could...
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