If Sprint buys T-Mobile, it may have to slash prices: analysts

Mon Jun 9, 2014 5:08pm EDT
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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 Monday.

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. Sprint’s 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 price."

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 for T-Mobile.   Continued...

People walk past a Sprint store in New York December 17, 2012.  REUTERS/Andrew Kelly