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After November collapse, merger talks between Sprint and T-Mobile are back

Sprint's shares have lost more than a fifth of their value amid questions about how the company can compete effectively under the weight of its long-term debt of more than $32-bn

Reuters 

File photo of smartphones with the logos of T-Mobile and Sprint. (Photo: Reuters)
Logos of T-Mobile and Sprint. (Photo: Reuters)

Corp has restarted talks to merge with US Inc, people familiar with the matter said on Tuesday, the latest effort to bring together the fourth and third largest US wireless carriers.

The combined company would have more than 127 million customers and could create more formidable competition for the No.1 and No.2 wireless players, Inc and Inc, amid a race to expand offerings in 5G, the next generation of wireless technology.

A previous round of talks ended in November over valuation disagreements but Tim Hoettges, CEO of T-Mobile's German parent Deutsche Telekom, left the door open at the time, saying: "You always meet twice in life."

Since then, Sprint's shares have lost more than a fifth of their value amid questions about how the company can compete effectively under the weight of its long-term debt of more than $32 billion.

Sprint's majority owner, Corp, has been looking to trim its debt, which reached 15.8 trillion yen ($147 billion) as of the end of December. It has said it is planning to raise cash by taking its Japanese mobile phone unit public this year.

| and decided to restart talks partly because they want to share the burden of investing in their networks, the sources said. The negotiations are at an early stage, they added.

A key consideration in the talks is Deutsche Telekom's ability to consolidate T-Mobile's earnings, one of the sources said. owns 63 percent of T-Mobile, which has emerged as one of its more prized assets. would likely have to put in new money toward a merger for its stake to remain above 50 percent.

The sources asked not to be identified because the matter is confidential. and declined to comment, while did not respond to requests for comment.

"I don't see how agrees to a transaction in which it relinquishes control," said Dhananjay Mirchandani, a at

Mirchandani said any control premium would probably be palatable to Deutsche Telekom's shareholders. He doubted, however, that the case for a deal had become more compelling since November.

Shares of closed up more than 17 percent at $6.02, giving the company a market capitalization of $25 billion, after first reported on the new talks.

rose 5.67 percent to $63.13, valuing it at $54 billion.

In Tokyo, Softbank gained 3.5 percent to 7,980 yen, while rallied by 4 percent in early European trading to 14.11 euros, a three-month high.

Seeking options

Failure to clinch a deal last November left SoftBank Masayoshi Son, a dealmaker who raised close to $100 billion for his to invest in technology companies, in search of other options for

"SoftBank has to change the way they approach this," analyst Roger Entner said. "Unless they have changed their minds, (and admitted) that they are indeed the junior partner, nothing has changed."

Even though Sprint's customer base has expanded under CEO Marcelo Claure, growth has been driven by discounting. Analysts say that, without T-Mobile, lacks the scale needed to invest in its network and to compete in a saturated market.

"It is impossible for to sustain on its own, and the same problems still exists with SoftBank and not comfortable with a minority stake," MoffettNathanson LLC analyst said. "But ultimately you have to believe that these two will end up together even if the path to get there is torturous."

has fared better than Sprint, even if it remains a distant third to Verizon and It has managed to score sustained market share gains, as innovative offerings, improving network performance and good customer service attract new customers, according to Moody's Investors Service Inc.

became the first major US 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.

Regulatory Concerns

Another roadblock to the deal could be regulatory hurdles. Sprint's and T-Mobile's first round of merger talks ended in 2014 after the Obama administration expressed antitrust concerns about the deal.

It was not immediately clear how the would view the combination. agreed to acquire US media company Time Warner Inc in October 2016 for $85 billion. The US Department of Justice has sued to block the deal over concerns about the companies' pricing power in the and Time Warner are currently defending their deal in court.

Caroline Holland, a veteran of the Justice Department's Antitrust Division who is now a Mozilla tech policy fellow, said that and would likely argue that their combination would mean more effective competition for Verizon and

"They are probably betting that they can make a competent and convincing argument that it's more important to have a stronger No. 3. They'll make a case that hasn't been a strong competitor," she said.

"I have a very healthy skepticism. I think four competitors has benefited consumers."

Analysts have said a combined company would cut costs by reducing cell-tower sites; shares of operators American Tower, and fell on the

First Published: Wed, April 11 2018. 21:49 IST
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