It seems that every non-AT&T and -Verizon telecom has become friendly with banks and M&A lawyers lately. Whether it’s the oft-rumored marriage of MetroPCS and Leap Wireless, or a larger company trying to snap up a regional competitor, the telecom industry appears to be in consolidation mode. With the U.S. wireless saturation rate approaching an effective 100 percent, carriers are finding it tougher to reel in new customers without slashing prices. That’s leading to rough revenue sheets, and M&A talks usually follow. The latest rumor is easily the biggest: Deutsche Telekom, parent company of T-Mobile, is considering a takeover of Sprint Nextel. While this would create the second largest wireless carrier in the United States, there are more than a few obstacles blocking any potential move. A merger makes sense because although both companies have high subscriber counts, third and fourth most in the country, they each have trouble retaining customers. Sprint has been losing customers for over a year now, and those numbers would be a lot worse if not for Boost Mobile’s attractive unlimited plan. T-Mobile is adding customers, but not many. Like Sprint, they’re adding them mostly in prepaid, which doesn’t approach postpaid’s ARPU. Problems exist right at the outset. T-Mobile operates a GSM network in the US, while Sprint Nextel operates both CDMA and iDEN networks. Sprint itself faced troubles with disparate network technologies when they acquired Nextel in 2005. The company hasn’t yet fully recovered from these difficulties, and possibly never will. To combine three different network technologies would appear to be telecom suicide, if we’re to heed the lessons of Sprint Nextel. Even 4G networks might not mitigate this deal. Sprint is working with Clearwire on WiMax technology, while AT&T and Verizon plan LTE networks over the next few years. Industry analysts almost universally agree that LTE will be the standard, but neither T-Mobile nor Sprint has publicly stated plans to roll out such a network. Perhaps a merged company would go all WiMax, but that’s a risky move. US customers saw many drawbacks of having two different network technologies, including the inability to bring a handset from one carrier to another. Government could also stand in the way of such a deal. The German government owns 32 percent of Deutsche Telekom, 15 percent directly and 17 percent through a state-owned bank. The American regulatory bodies might not like that. Meanwhile, the German government might not approve of a deal because it would mean majority control of the company would lie with American shareholders. It’s tough to expect a merger with such delicate governmental concerns. If the two companies used the same network technology, and if the German government didn’t have a sizable stake in DT, perhaps a merger would make more sense. As it stands now, it appears unlikely. It’s understandable why DT would make inquiries about Sprint, but the smart money is on the process ending there. Any further movement would probably prove a headache.
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