Sprint buys T-Mobile, it may have to slash prices:
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[June 10, 2014]
By Marina Lopes
WASHINGTON (Reuters) - If
Sprint Corp acquires T-Mobile US Inc, it could save up
to $6.6 billion on network, equipment and operating
costs, but it will have to slash its prices to match the
target company's steep discounts, analysts said on
Sprint, under Chairman Masayoshi Son, has been hesitant to join
other carriers in cutting fees because a decline in revenue would
hurt its stock price, analysts say. Its shares have risen 8 percent
since Dec. 12 on speculation it was looking to acquire T-Mobile from
Deutsche Telecom AG.
"I think he's realized he's between a rock and a hard place.
Sprintís prices are much too high, but if Sprint cuts prices, its
stock will fall," said Craig Moffett, lead analyst at
MoffettNathanson. "They don't come close to justifying their stock
The price differential is just one hurdle that Sprint, which is 80
percent owned by Japan's SoftBank Corp, would face if it pursues a
deal to buy T-Mobile.
Son has argued to U.S. regulators that a merger would give the
companies leverage to compete against AT&T Inc and Verizon
Communications Inc. The new company would boast more than 100
million subscribers, just behind both Verizon and AT&T.
But the Federal Communications Commission, which in 2011 rejected
AT&T's bid for T-Mobile, has repeatedly said it wants to maintain
four competitors in the wireless industry.
Unease about whether Sprint can overcome regulatory hurdles sent its
stock down 9.3 percent to $8.77 since details emerged of a potential
bid last Wednesday.
Sprint customers spend an average of $62 a month, compared with $50
"It is not a sustainable situation. If the companies merge, they
will need uniform pricing across the company," said Michael
McCormack, a lead analyst at Jefferies.
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Sprint and T-Mobile did not immediately respond to requests for
Sprint has agreed to pay about $40 per share to buy T-Mobile, a
person familiar with the matter told Reuters last week. None of the
companies involved in the potential transaction have confirmed that
a deal is imminent.
The proposed acquisition comes as a massive overhaul of Sprint's
network is degrading the quality of its phone calls, which it says
has cost it 2.5 million customers in the past five quarters.
T-Mobile, on the other hand, added the most subscribers in the first
quarter of 2014 as it launched aggressive discounts that have forced
its competitors to cut prices.
But the company's strategy has come at a steep cost. T-Mobile lost
$151 million in the first quarter and fell short of analysts'
(Editing by Eric Walsh)
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