Are Sprint (S) & T-Mobile US (TMUS) Reconsidering Merger?

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Ever since Republican nominee Donald Trump has won the U.S. presidential election, the telecom industry circle is rife with speculations that the Trump regime may pave the way for a merger between T-Mobile US Inc.TMUS and Sprint Corp.S . These companies are the two smaller national telecom service providers in the U.S., lagging telecom behemoths Verizon Communications Inc. VZ and AT&T Inc. T .

The previous Democrat regime with Barack Obama at its helm was strictly against further consolidation of the U.S. telecom industry which provides nationwide telecom services. The U.S. telecom regulator Federal Communications Commission (FCC) firmly stated that it wanted at least four powerful national telecom operators in the country. Therefore, a merger between top four telecom operators seemed a distant dream.

However, it has been widely speculated that the new Republican regime under Trump may not pursue such strict regulatory measures. Consequently the FCC might be open to a possibility of a merger proposal between the top four national telecom operators.

Notably, both T-Mobile US and Sprint is currently controlled by non-US firms. Deutsche Telekom AG is the parent company of T-Mobile US while Sprint is controlled by Softbank. Since 2011, Deutsche Telekom is looking for a suitable acquirer for T-Mobile US.

In 2011, AT&T placed the first bid of $39 billion for gaining full control of T-Mobile US. After a close inspection, the FCC thwarted AT&T's attempt to acquire T-Mobile US, stating that it seeks a minimum of four national carriers in order to maintain competitiveness. In Jul 2014, Sprint offered $16 billion for a little over 50% stake in T-Mobile US. The deal was thoroughly evaluated by both the FCC and the U.S. Department of Justice with the regulators coming to the same conclusion again. Consequently, Sprint opted out of the race.

In Aug 2014, French telecom startup Iliad SA offered $15 billion ($33 per share) for a 56.6% stake in the nation's fourth largest telecom operator. However, Deutsche Telekom, the parent company of the T-Mobile US, outright rejected the offer on ground of inadequacy.

Whether Sprint and T-Mobile US will try for a merger yet again or not is remain to be seen. However, if a merger happens, a combined Sprint-T-Mobile US will become a formidable entity which can challenge the telecom market supremacy of Verizon and AT&T.

Price Performance of Sprint and T-Mobile US

Year-to-date, the Zacks categorized U.S. Wireless industry has registered an impressive growth of 20.15%. Both Sprint and T-Mobile US experienced strong momentum in stock price in the same time frame. Year-to-date, shares of Sprint surged a whopping 126.52% while T-Mobile US" shares climbed 43.48%.

Nevertheless, both T-Mobile US and Sprint are emphasizing on their core wireless network offering several price concessions to entice customers away from their large peers. However, this may negatively impact their margins going forward. Moreover, the U.S. wireless market is likely to become even more competitive as several cable TV operators are set to enter in the fray in 2017. We believe these are the primary reasons behind both Sprint and T-Mobile US currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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T-MOBILE US INC (TMUS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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