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DEALTALK-With T-Mobile gone, who will Sprint call?

Published 03/21/2011, 11:46 PM
Updated 03/21/2011, 11:48 PM

(For more Reuters DEALTALKS, click )

* Sprint could buy Clearwire, Lightsquared

* MetroPCS, Leap targets for Sprint in value segment; shares jump

* Cable operators may want Sprint, but doubtful

* Verizon unlikely to make move on Sprint anytime soon

By Nadia Damouni

NEW YORK, March 22 (Reuters) - Who will Sprint Nextel Corp call next?

Sprint was left out in the cold on Monday after AT&T Inc swooped in to buy T-Mobile USA from Deutsche Telekom for $39 billion, a deal that would create the largest U.S. wireless carrier if approved by regulators.

Sprint's shares slid 13 percent as investors' hopes faded that it might strike a deal with Deutsche Telekom, increasing pressure on the U.S. company to fight back with an acquisition of its own.

Bankers said Sprint had a handful of options, but none of them would give it the clout to compete in a market dominated by AT&T and Verizon Wireless, which would collectively hold an almost 80 percent market share.

Sprint can look to buy Clearwire Corp or Harbinger-backed Lightsquared, smaller players that have plenty of airwaves at their disposal but need cash, bankers said. The bankers spoke on condition they not be named because they were not authorize to speak to the media.

It could also go after low-cost wireless carriers such as MetroPCS Communications Inc or Leap Wireless International Inc to compete for cost-conscious consumers, a segment in which it already operates, they said.

But Sprint would still remain a distant third in the market after any such deals and can only hope in the long-term for a buyer, such as Verizon Wireless or a cable operator like Comcast Corp or Time Warner .

That is far-fetched, bankers added, because cable operators could find more cost-effective ways to get mobile services, such as through wholesale arrangements or other commercial relationships. Several have relationships with Clearwire, which bankers said could be an attractive target for cable operators.

Sprint already owns 54 percent of Clearwire and is unlikely to sell out of that position. Instead, bankers said buying Clearwire most likely would be its next move.

Clearwire CEO Bill Morrow resigned earlier this month as part of a management shake-up amid a rate dispute with Sprint, which leases network space from the wireless services provider.

Clearwire is looking for billions of dollars in new funding through either a sale of unneeded spectrum or an equity investment to finish building a high-speed wireless network.

"Sprint has to focus on what they do with Clearwire," an industry banker said. "If anything, it accelerates the timeline where Sprint buys it in."

Lightsquared, which is also looking for capital, could fit into Sprint's plans, a second industry banker said.

"There is no doubt they are out talking to everybody," the banker said.

"For (Lightsquared) to raise money, they need a large anchor wireless tenant," the banker added. "No one is going to commit capital to them unless they have someone to actually buy their services."

MetroPCS or Leap could also be attractive targets for Sprint, bankers said. Shares of Leap soared 15.7 percent, while MetroPCS were up 4.8 percent on Monday.

With T-Mobile distracted by the AT&T deal this year, "it is going to be an opportunity for Sprint to take share in that value segment," the first banker said.

"By buying Metro and or Leap, you can basically dominate and own that segment of the market," the banker said. "People look at it as downscale, but the reality is it is a profitable business and Sprint is good at it. So why not try to dominate one end of the market."

VERIZON MOVE UNLIKELY

Bankers discounted the possibility of a move by Verizon Wireless, which is owned by Verizon Communications and Vodafone Group Plc , to buy Sprint anytime soon to defend its turf against AT&T.

"There is no reason to rush anything right now if you are Verizon," the second banker said. "You could wait three months, six months, nine months to do something, or do nothing."

Late on Monday, Verizon Chief Executive Daniel Mead said the company was not interested in buying Sprint.

Sprint, with a market cap of about $15 billion, would be stretched to launch a counter bid for T-Mobile.

Sprint would need to give up at least 62 percent of its ownership to Deutsche Telekom just to be at parity with AT&T's offer price, according to Citigroup analysts.

And in any case, Deutsche Telekom structured the T-Mobile USA deal as a private asset sale, which means it does not have a "fiduciary out" allowing it to consider rival offers and it does not require shareholder approval, according to a source familiar with the situation. (Reporting by Nadia Damouni; Writing by Paritosh Bansal and Megan Davies; Editing by Matt Driskill)

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