Sprint ends bid to acquire T-Mobile. Why the change of heart?(Read article summary)
Sprint has dropped its bid to acquire T-Mobile US and has announced that Marcelo Claure, founder of the wireless company Brightstar Corp., will become Sprint's next president and chief executive officer.
Sprint has halted its bid to acquire T-Mobile US, an acquisition designed to counter a US wireless market currently dominated by Verizon and AT&T by combining the third and fourth-largest US wireless companies.
This change of heart – first reported Tuesday by The Wall Street Journal, citing "people familiar with the matter" – is a result of opposition from federal regulators who want to see four competitive players in the US wireless market. Sprint shares fell 19 percent on Wednesday, while T-Mobile shares fell 10 percent.
Now, Sprint is making moves to improve its company's culture after years of losing customers.
"Four national wireless providers is good for American consumers," Federal Communications Commission chairman Tom Wheeler said in an e-mailed statement to The Wall Street Journal. "Sprint now has an opportunity to focus their efforts on robust competition."
To do this, Sprint announced Wednesday that Marcelo Claure, founder of the wireless company Brightstar Corp., will serve as the company's next president and chief executive officer, succeeding Dan Hesse, who has served as president since 2007.
Sprint has pursued T-Mobile US, whose majority owner is the German telecommunications company Deutsche Telekom, for the past nine months. That pursuit was spearheaded by the Japanese businessman Masayoshi Son, whose telecommunications company SoftBank controls Sprint. Mr. Son's goal was to build a rival to Verizon and AT&T that could have the "the financial power and airwaves to serve more customers and eventually deliver faster broadband to consumers more cheaply than cable," Bloomberg reports. Just last month, the two companies were discussing a potential $32 billion deal, according to The New York Times.
But the FCC believes consumers, particularly those not able to pay larger wireless fees, would have been poorly served by such a merger. As The Journal reports, three years ago the FCC and Justice Department did not allow AT&T to acquire T-Mobile for $39 billion.
While Sprint is gearing up to revamp its company culture, which Son has referred to as having a "loser" mentality, it is unclear what the future of T-Mobile will be. Deutsche Telekom, The Times reports, has indicated it wants to sell off its stake in T-Mobile. But with the Sprint deal off the table, it may be on the market for other potential buyers. Just last week, it was reported that the French upstart wireless carrier Iliad had made a $15 billion cash offer for a 56.6 percent stake in T-Mobile US. Though Deutsche Telekom reportedly turned that offer down, it's possible that with Sprint out of the picture, Iliad could make another offer.
Still, it would seem neither Sprint nor T-Mobile is willing to completely abandon plans of a potential merger. But given the Obama administration's determination to prevent the merger, it's unlikely to happen any time soon.
"We didn't think the opposition would be this strong," a SoftBank executive told Reuters, adding: "The environment will definitely change."
T-Mobile, led by the eccentric chief executive John Legere, has marketed itself to consumers as the "Uncarrier," requiring no annual service contracts and offering low-cost pricing plans. It reported its first net-profit in a year in the second quarter, according to Reuters.