Recent press reports suggest that Sprint is mulling a split with Nextel in a move that could pave the way for a takeover bid by Deutsche Telekom, parent of rival Sprint mobile operator T-Mobile USA. The Wall Street Journal (WSJ) reported on Sunday that Deutsche Telekom is considering a bid for the operator to expand its profitable US mobile business, which has been increasingly instrumental in offsetting the declines in the German incumbent’s domestic fixed-line business. The combination of Sprint-Nextel and T-Mobile USA – currently the third and fourth largest US mobile operators, respectively – would create the largest mobile operator in the country with 82 million subscribers. The same paper also reported that Sprint is considering spinning-off or selling its Nextel unit as part of an ongoing strategic review.
Since its US$35 billion merger in 2005, the Sprint-Nextel business has reportedly lost customers to larger rivals such as AT&T and Verizon Wireless as it struggled to integrate two networks, Sprint’s CDMA-based network and Nextel’s proprietary iDEN network. As a GSM operator, Deutsche Telekom may also face similar integration problems if an acquisition went ahead, which is why analysts believe spinning-off Nextel could make Sprint a more attractive acquisition target. Sprint is also set to launch its WiMAX network later this year. Meanwhile, reports suggest that Deutsche Telekom could take advantage of the current financial climate to acquire Sprint at a bargain price: Marketwatch reports that Sprint’s stock has lost one-third of its value so far this year and is trading close to a six-year low. As a European company, Deutsche Telekom is also in a position to take advantage of the strong euro against a weak US dollar. However, Marketwatch suggests a deal could struggle to win approval from US regulators. In a separate development, US fixed-line operator Qwest announced this week it is to cancel its agreement with Sprint to resell its mobile services in favour of a new deal with Verizon Wireless. The five-year deal will begin this summer and will see the transfer of over 800,000 Qwest mobile customers from Sprint to Verizon.