T-Mobile deal collapse could spark telecom price war

Wed Aug 6, 2014 7:52pm EDT
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By Marina Lopes

WASHINGTON (Reuters) - Sprint Corp's (S.N: Quote) newly appointed Chief Executive Marcelo Claure has so far had a Midas touch in the telecoms industry, turning Brightstar, a reseller of U.S. handsets to Latin America, into a distributor valued at $2.2 billion when it was sold to Japan's SoftBank (9984.T: Quote).

But his talents will now be put to the test like never before as he must complete the No. 3 carrier's network upgrade while trying to retain customers, who are defecting in droves.

"We are talking about billions of dollars of capital spending in front of this company before the network is ready," MoffettNathanson analyst Craig Moffett said, noting that Sprint likely has to cut prices to compete with the industry's top players.

"Unfortunately raising capital spending and cutting prices at same time is recipe for a very ugly financial situation."

Some analysts fear that Sprint's decision to give up its dream of merging with T-Mobile US Inc TMUS.N could lead to a wider price war as the top carriers slug it out in a nearly saturated market.

"Without the ability to compete on scale they are going to have to compete on price, so the two smaller competitors may become increasingly desperate to maintain market share and could become irrational in pricing, which could cause disruptions in pricing in the industry," said Mark Stodden, analyst at Moody's Investors Service.

Sprint might follow the lead of T-Mobile, which added more subscribers than all of its competitors combined in the first quarter through aggressive promotions and campaigns that addressed customer frustrations with the industry.

"Sprint could take the same road and try to compete more aggressively on price, which could have the effect of restarting subscriber growth," said Matthew Goodman, analyst at ITG Investment Research, who saw few short-term alternatives.   Continued...

File photo of a T-Mobile logo being positioned on a shop front in Warsaw June 1, 2011. REUTERS/Kacper Pempel/Files