SoftBank, the majority shareholder in Sprint, entered talks with Deutsche Telekom as it looks to combine its US operation with T-Mobile US, according to Bloomberg.

Sources said SoftBank wants to discuss issues relating to a potential deal, including how much cash and stock it would need to pay for Deutsche Telekom’s 76 per cent stake in T-Mobile, as well as how Sprint and T-Mobile would be integrated.

Another issue that needs to be addressed is a breakup fee in case such a deal fails. Sources said SoftBank and Sprint could not afford a financial penalty as high as the $7 billion in cash and assets that AT&T paid when its attempt to acquire T-Mobile failed in 2011.

Deutsche Telekom is believed to want an all-cash offer, with SoftBank trying to finance a deal that includes as much cash as possible.

Deutsche Telekom’s new CEO, Timotheus Hoettges, told Bloomberg in an interview that the company has recouped its investment in T-Mobile US with the value of its US operations back to the level it was when AT&T made its offer for the business.

The increase in value has compensated for the EUR7.4 billion writedown Deutsche Telekom was forced to make on the asset in 2012.

A potential deal that would combine Sprint and T-Mobile US is likely to face regulatory opposition, as the latter is deemed to play an important role in the US mobile market.

T-Mobile’s ‘uncarrier’ strategy, in which customers can upgrade devices more freely, as well as the provision of lower prices than competitors and free international roaming, has seen it gain subscribers from other networks, providing the kind of competition that the US Justice Department has long sought.

In a letter sent to the Justice Department and FCC on 7 January, the American Antitrust Institute said T-Mobile would be unlikely to continue its pricing approach if it was acquired by Sprint.

As well as the pricing issue, the fact that a deal for Sprint to buy T-Mobile US would reduce the number of national US mobile operators from four to three is likely to be a cause for concern for regulators.

Indeed, the Justice Department blocked AT&T’s effort to acquire T-Mobile in 2011, arguing that T-Mobile “places important competitive pressure on its three larger rivals”. It also voiced concern that the reduction to three nationwide operators would reduce competition, leading to higher prices for customers.

However, a merged entity would position Sprint/T-Mobile US as a realistic match for AT&T and Verizon Wireless in the country’s mobile market.

The new combination would have approximately 101 million connections against 110 million connections for AT&T and 118 million for Verizon Wireless (GSMA Intelligence, Q4 2013).