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T-Mobile Mulling Takeover of Sprint Nextel

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Following its joint venture with Orange in the UK, Deutsche Telekom is now reported to have called in bankers to plot a takeover bid for the struggling USA based Sprint Nextel. Sources have told the UK based Telegraph newspaper that Deutsche Telekom could submit a bid for Sprint, which has a market valuation of $10.6 billion, within the next few weeks.

This is not the first time that rumours of a tie up between the two US networks have emerged though - with fevered speculation last May that eventually fizzled out.

It is thought DT will also consider copying its approach to T-Mobile UK by merging its US operation with Sprint. Sources stressed that DT is also examining other operations to turn around the US business as a single entity.

The newspaper said that Deutsche Telekom could fund a deal by calling on its shareholders for funds. The German government controls a 15% stake in Deutsche Telekom directly and holds another 17% via state-owned bank KfW Bankengruppe.

Any takeover or merger would be a regulatory nightmare though, as the US government would be unlikely to allow another telecoms takeover by a company that has a substantial shareholding by the German government - whilst a merger would result in Deutsche Telekom becoming majority owned by US shareholders. The German government in turn may not approve of that result.

Equally, it should be noted that you would end up with a company which runs three networks using different air interface technologies. A possible proposal that was mooted last year to spin off the iDEN based Nextel network and retain the CDMA and GSM networks would not only make integrating their platforms a lot easier - it would probably please a lot of disgruntled iDEN subscribers who have been ditching the network since Sprint took over.

The separate CDMA and GSM networks are likely to converge over time as network operators move towards deploying LTE based networks en-mass from next year. Such a convergence would significantly lower the upgrade costs as well as slicing into the operational cost base.

Sprint Nextel recently outsourced its entire network management to Ericsson, who can be presumed to benefit from a possible expansion of the management contract to include the T-Mobile assets.

Current and Prospective Customer Bases (End June 2009)

Source - The Mobile World

Current Market Alignment Post Merger Alignment
Operator Customer Base (m) Operator Customer Base (m)
Verizon Wireless 87.7 Verizon Wireless 87.7
AT&T 79.6 AT&T 79.6
Sprint Nextel 48.8 Sprint Nextel / T-Mobile 82.3
T-Mobile 33.5 Unconsolidated Minorities and Unidentified Others 8.1
Unconsolidated Minorities and Unidentified Others 8.1 MetroPCS Communications 6.3
MetroPCS Communications 6.3 US Cellular 6.2
US Cellular 6.2 Leap Wireless 4.6
Leap Wireless 4.6 Centennial 1.1
Centennial 1.1    

On the web: Telegraph - Mobile World

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Tags: deutsche telekom  sprint nextel  base  three