Deutsche Telekom could be weighing a multibillion dollar bid to buy Sprint Nextel within the next few weeks, said London's Daily Telegraph on Sunday. The German telecommunications giant has called on financial advisor Deutsche Bank to study a proposed deal.
As the parent of struggling T-Mobile, DT might see a takeover of Sprint as a way to revive its listless U.K. and U.S. operations. DT chief executive officer Rene Obermann has been unhappy with the performance of T-Mobile, blaming it for the parent's first-quarter loss of 1.1 billion euros ($1.46 billion) earlier this year.
Facing stiff competition for mobile customers, T-Mobile has struggled in the No. 4 spot behind Verizon Wireless, AT&T, and Sprint.
DT enjoyed a turnaround in the second quarter, taking in a profit of 521 million euros ($751 million). But T-Mobile's global operations have continued to drag, squeaking by through cost cuts rather than sales or customer gains.
Obermann's latest fix for the U.K. segment, announced last week, is a merger to join the British operations of T-Mobile UK and France Telecom's Orange. That marriage will create the U.K's biggest mobile provider.
Now T-Mobile U.S. may be next on the list. Complaining of structural problems with T-Mobile U.S., Obermann has sunk almost 1 billion each year to improve the U.S. network. But the investment has yet to pay off.
Reports of a possible DT takeover of Sprint first surfaced in May of 2008 but didn't go far at that time.
A deal that would merge T-Mobile U.S. and Sprint could create a mobile powerhouse. But analysts aren't sure Obermann can pull it off.
First, DT would need to figure out how to integrate three different types of wireless technologies, said Sanford Bernstein analyst Robin Bienenstock in a research report released Monday. After joining forces in 2005, Sprint and Nextel have faced headaches combining their two incompatible technologies. The situation could be worse for DT as it tries to assimilate T-Mobile's GSM, Sprint's CDMA, and Nextel's iDEN technologies.
Second, DT would need to cough up a lot of cash. To buy Sprint, which the Daily Telegraph said is valued at around $10.6 billion, DT would have to get a substantial injection of money from its shareholders, including the German government, which owns a 32 percent share of the company.
Despite the hurdles, the Sanford Bernstein report sees the deal as a positive, and not just for Deutsche Telekom. "For DT, an acquisition of Sprint may be the 'least bad' option," said the report. But "the U.S. wireless market is crying out for consolidation. In that context, the consolidation of a weak third and a nearly-as-weak fourth player in the market would be a welcome development...for everyone."