The stifling of innovation and putting too much power in the hands of too few are at the heart of concerns expressed by Dan Hesse, CEO of Sprint Nextel Corp.
Sprint CEO ‘Concerned’ About AT&T Deal
Sprint Nextel Corp. CEO Dan Hesse said Tuesday that he’s concerned that AT&T Inc.’s deal to buy T-Mobile USA would hurt his company and the industry, as the biggest two players strengthen their dominance.
The $39 billion deal was announced Sunday, but is expected to take more than a year to close, after scrutiny by regulators.
AT&T and Verizon Wireless already have two-thirds of U.S. wireless subscribers, and would have three-quarters if the deal goes through.
“I do have concerns that it would stifle innovation and too much power would be in the hands of two,” Hesse said in a panel discussion at cellphone conference in Orlando, Fla., monitored by webcast.
The head of Verizon Wireless, Dan Mead, was asked on the same panel whether he had a stand on the proposed deal.
“We’re certainly very interested in what’s going on,” he said.
T-Mobile’s CEO, Philipp Humm, did not appear at the panel as scheduled.
Sprint, the No. 3 carrier, has been struggling for years due to the troubled acquisition of Nextel. Last year, its subscriber numbers started improving, but it still has a hard time luring high-paying subscribers from AT&T and Verizon, both of which now sell the popular iPhone. T-Mobile has the same problem.
AT&T’s agreement to buy T-Mobile, the No. 4 carrier, came as a surprise: media reports had previously pegged Sprint and T-Mobile as likely to combine their businesses. But AT&T was able to offer T-Mobile’s parent company, Germany’s Deutsche Telekom AG, much more.
The deal leaves Sprint “somewhat out in the cold,” said Barclays Capital analyst James Ratcliffe.
Scale is important in the wireless business. It’s very expensive to build out and maintain a wireless network, but once that’s done, you add customers without incurring a lot of extra costs. That means wireless carriers with more customers can be much more profitable than smaller competitors. Larger carriers also have more clout when it comes to negotiating with phone makers.
The stock of Overland Park, Kan.-based Sprint has fallen 10 percent since the AT&T-T-Mobile deal was announced. In afternoon trading Tuesday, they were at $4.53, up 17 cents on the day.
However, Sprint’s shares were the only ones to fall among cellphone companies. Those of even smaller wireless carriers actually rose, as investors calculated there might be something in the deal for them. The smaller carriers could be targets for acquisition by Sprint, or they could be in line to buy assets from T-Mobile or AT&T that regulators force the carriers to sell as a condition of approving the deal.
Shares of Dallas-based MetroPCS Communications Inc., the No. 5 carrier, were up 3.5 percent. No. 6 U.S. Cellular Corp., a Chicago-based regional carrier rose 5.4 percent. Leap Wireless International Inc., the parent of the low-cost Cricket service, was up 15 percent.
Shares of Clearwire Corp., which is building a wireless broadband network, also fell on Monday in response to the news, but recovered on Tuesday, trading up 22 cents, or 4.5 percent, at $5.28. Clearwire is majority-owned by Sprint and has a lot of wireless spectrum available for broadband, so there was speculation that it could have made some sort of deal with T-Mobile, which is poor in spectrum.
Shares of Verizon Communications Inc. (VZ) (VZ), which owns 55 percent of Verizon Wireless, rose on the news. The deal would let AT&T surpass Verizon Wireless as the largest carrier, but analysts said it’s well equipped to compete with AT&T, and the deal would eliminate T-Mobile as a low-price competitor. (Vodafone Group PLC (VOD) of Britain owns the rest of Verizon Wireless.)
In Tuesday afternoon trading, Verizon shares were up 53 cents at $37. That was up 3.3 percent since the deal was announced. The shares are close to their 52-week high of $37.70.