Facing stiff regulatory opposition, Sprint Corp. (S) ended its pursuit of T-Mobile (TMUS). The failed marriage also appears to have cost Sprint chief executive Dan Hesse his job, as the company also announced the appointment of a new CEO, Marcelo Claure. The merger would have created a formidable competitor to market leaders Verizon Communications (VZ) and AT&T (T). Now it appears Sprint is prepared to go it alone as it tries to improve customer satisfaction and rebuild its subscribership.
In response to the news S shares fell nearly 19%.
The road to recovery will be long and uncertain. According to the Wall Street Journal, the company hasn’t been profitable since before 2007, due in large part to its merger with Nextel. Over a year ago the company was taken over by Japanese firm Softbank Corp., but, thus far, new ownership hasn’t righted the ship.
Things are looking much better for T-Mobile. It has added more than 4 million postpaid customers over the past five quarters and appears to have other suitors waiting in the wings. Iliad SA, a French wireless provider, has offered to pay $15 billion for control of the company, and satellite television operator Dish Network Corp.’s (DISH) chairman, Charlie Ergen has said he would be interested in T-Mobile if Sprint’s deal fell through. However, T-Mobile denied Iliad’s request for access to its books after determining that the proposed $15 billion bid wasn’t strong enough.
Prospects for the merger to go through were slim as regulators voiced concern about the combining of the country’s third- and fourth-largest wireless carriers, which would have left consumers with fewer choices for service, particularly at the low end of the market. Just last week, the Federal Communications Commission (FCC) said it would propose rules that would prevent Sprint and T-Mobile from bidding together in a crucial coming spectrum auction.
Softbank chief executive, Masoyoshi Son, was working hard on the PR front to overcome FCC opposition. He appeared on Charlie Rose and at conferences promising an alternative to what he considers America’s backward wireless networks and saying he needed scale to mount a real fight with Verizon and AT&T.
In the end, however, Son came to the conclusion that moving forward was too risky. The merger would need not need to pass the antitrust review at the Justice Department, but also a public interest vetting by the FCC. Three years ago the FCC derailed AT&T’s $39 billion deal to buy T-Mobile.
Mr. Claure is an interesting choice to take over Sprint, as he is an untested quantity. He built mobile phone distributor Brightstar Corp. into a company with more than $10 billion in revenue and a presence in more than 50 countries. SoftBank bought control of Brightstar in January to give it more clout with makers of mobile phones and put Mr. Claure on Sprint’s board.