Sprint, T-Mobile call off merger after months of talks

SAN FRANCISCO/NEW YORK (Reuters) – Sprint Corp (S.N) and T-Mobile US Inc (TMUS.O) said on Saturday they have called off merger talks to create a stronger U.S. wireless company to rival market leaders, leaving No. 4 provider Sprint to engineer a turnaround on its own.

The announcement marks the latest failed attempt to combine the third- and fourth-largest U.S. wireless carriers, as Sprint parent SoftBank Group Corp (9984.T) and T-Mobile parent Deutsche Telekom AG (DTEGn.DE), show unwillingness to part with too much of their prized U.S. telecom assets.

A combined company would have had more than 130 million U.S. subscribers, behind Verizon Communications Inc (VZ.N) and AT&T Inc (T.N).

The failed merger could also help keep wireless prices low as all four providers have been heavily discounting their cellphone plans in a battle for consumers.

&ldquo-Consumers are better off without the merger because Sprint and T-Mobile will continue to compete fiercely for budget-conscious customers,&rdquo- said Erik Gordon, a Ross School of Business professor at the University of Michigan.

The companies&rsquo- unusual step of making a joint announcement on the canceled negotiations could indicate they still recognize the merits of a merger, keeping the door open for potential future talks.

Sprint and T-Mobile said they ended talks because the companies &ldquo-were unable to find mutually agreeable terms.&rdquo-

John Legere, chief executive of T-Mobile, said in the statement that the prospect of combining with Sprint was compelling, but &ldquo-we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile&rsquo-s shareholders compared to our outstanding standalone performance and track record.&rdquo-

Sprint CEO Marcelo Claure said that even though the companies could not reach a deal, &ldquo-we certainly recognize the benefits of scale through a potential combination.&rdquo-

Claure also said Sprint has agreed it is best to move forward on its own with its assets &ldquo-including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.&rdquo-

SPRINT&lsquo-S ROAD AHEAD

Failure to clinch an agreement leaves SoftBank CEO Masayoshi Son, a dealmaker who raised close to $100 billion for his Vision Fund to invest in technology companies, needing to find another option for Sprint.

Sprint is in the middle of a turnaround plan and has sought to strengthen its balance sheet by cutting costs. But industry analysts have expressed concern that the company, weighed down with total debt of $38 billion, has few financial options.

Even though its customer base has expanded under CEO Claure, growth has been driven by heavy discounting. Analysts said an end to talks with T-Mobile would leave debt-laden Sprint without the scale needed to invest in its network and to compete in a saturated market.

Sprint has sought to strengthen its balance sheet by cutting costs and mortgaging a portion of its airwaves and equipment.

Mark Stodden, telecom analyst at Moody&rsquo-s Investors Service, said about Sprint: &ldquo-To really take the kind of next step from a business that has been stabilized to a business that has been growing is going to require a new more intense investment phase.&rdquo-

T-Mobile is in a better position as a standalone company, analysts have said.

T-Mobile, controlled by Germany&rsquo-s Deutsche Telekom which owns roughly 65 percent, became the first major carrier to eliminate two-year contracts – a shift quickly embraced by consumers and copied by competitors. The company has also badgered rivals with its unlimited data plans.

Deutsche Telekom CEO Tim Höttges said in a statement on Saturday that T-Mobile has a &ldquo-strong basis for growth in the upcoming years.&rdquo-

MONTHS OF TALKS

Both companies had expressed interest in a tie-up this year. SoftBank was prepared to give up control to do a deal with T-Mobile, sources familiar with the company&rsquo-s thinking told Reuters in February. But no deal was announced immediately following the conclusion of a ban on merger talks in the spring that was associated with a U.S. government auction of wireless airwaves.

Both Sprint and T-Mobile said they were open to exploring other options.

An added wrinkle was Sprint&rsquo-s negotiations with cable companies Comcast Corp (CMCSA.O) and Charter Communications Inc (CHTR.O).

A source told Reuters in July that SoftBank was considering an acquisition offer for Charter in a deal where it would combine the cable company with Sprint.

The two companies came close to announcing a merger in 2014, but called it off at the last minute due to regulatory concerns.

Industry executives have said a combined Sprint-T-Mobile entity would have the scale, network and enhanced portfolio of wireless airwaves and a better chance to develop 5G, the next generation of wireless technology.

Even if T-Mobile and Sprint had agreed on merger terms, they would have faced major challenges convincing antitrust regulators that their deal should be approved.

&ldquo-This is good news for consumers – a potential merger by T-Mobile and Sprint could have raised serious antitrust issues,&rdquo- Senator Amy Klobuchar of Minnesota said in a statement.