Daytraders lucked out on Tuesday after an early morning report that Sprint Nextel (NYSE:S) has been in merger talks with Deutsche Telekom’s T-Mobile USA unit. The German telecom is said to be willing to sell T-Mobile to Sprint in exchange for a significant stake, as much as 50%, in the new combined company.
Shares of Sprint jumped 3.7% to $4.64 on the news.
The merger could represent a good opportunity for those two companies, but individually their futures have looked murky at best.
A December study by research group Trefis found that its market share among 3G smartphone providers share had been halved to 9.5% by the end of 2010. The increasing popularity of Apple’s (NASDAQ:AAPL) iPhone and that device’s recent debut on Verizon’s (NYSE:VZ) 3G network both suggest Sprint’s slide in the 3G market will continue this year.
Sprint’s early lead as a 4G provider, with support from handheld manufacturers like Samsung and HTC, won’t account for much if the company doesn’t switch its current WiMax technology to LTE to accommodate the rumored iPhone 5 from Apple. As Eric Zimmerman of InformationWeek pointed out Monday, it’s very likely that Sprint will make the switch to a new LTE 4G network, but it’s not guaranteed. If they do make the switch, they risk alienating early adopters and business clients using its current Clearwire (NASDAQ:CLWR)-supported WiMax network.
The same goes for T-Mobile. The company’s HSPA+ standard “4G” network pushed in the company’s current advertising blitz isn’t technically a 4G network at all. Since T-Mobile doesn’t offer a future-proofed network to bolster Sprint, and its 3G network is also bleeding subscribers — T-Mobile lost around 56,000 subscribers to Verizon, AT&T (NYSE:T), and Sprint in 2010 — it’s difficult to predict how its assets would benefit its already wounded competitor. T-Mobile USA may have pulled in $21.4 billion in revenue last year, but that number is likely to shrink by the end of 2011.
A merger could strengthen both companies and extend the security of Deutsche Telekom’s interests in the U.S., but without the support of Apple that both Verizon and AT&T enjoy, or a significant 4G product to differentiate the new combined entity, this doesn’t look like a new major telecom stock on the horizon.
From the look of things, the Apple support isn’t coming — the recent iPad 2 announcement didn’t entail support for either company’s networks. An announcement of LTE adoption from Sprint ahead of confirmation of this merger might change things, but don’t bet on it.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.
