Sprint Won’t Pursue MetroPCS, at Least for Now
Sprint Nextel’s decision not to buy MetroPCS, news of which broke late Friday, had few regulatory implications. None of the analysts looking at the deal mentioned potential regulatory complications. When Sprint announced a merger agreement with Nextel in late 2004, then-FCC Chairman Michael Powell all but welcomed the deal, projecting the new company to be an enhanced rival of Verizon Wireless and AT&T, then Cingular. Potentially more concerning for the FCC this time around is the extent to which Sprint has emerged as a wounded warrior after it led the fight to beat back AT&T’s buy of T-Mobile last year.
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Based on various analyst reports, Sprint CEO Dan Hesse wanted to buy MetroPCS for $8 billion, mostly in stock. The board heard him out and refused.
Sprint and MetroPCS are not commenting. Sprint cancelled an appearance scheduled for Monday by Chief Financial Office Joe Euteneuer at the Deutsche Bank Media & Telecom Conference. Hesse is scheduled to speak to the GSMA Mobile World Congress in Barcelona Thursday. Last year, Sprint signed a deal worth more than $15 billion with Apple agreeing to buy 30 million iPhones, which dwarfed the reported size of the MetroPCS deal.
"There’s a reason Sprint threw so many resources at its vigorous opposition to the now-defunct AT&T/T-Mobile merger,” said Jeff Silva, analyst at Medley Global Advisors. “While news reports have raised questions about … Hesse’s leadership, the truth is Sprint’s fundamental challenges defy any silver-bullet solution,” Silva said. “The carrier’s options are at once limited and less than optimal. I tend to doubt even the savviest of corporate turnaround gurus would be able to right the ship in short order."
Most Wall Street-oriented analysts saw the scuttled deal as a bad sign for Sprint going forward. “We think … Hesse’s willingness to use his deflated stock as a currency for PCS can be viewed as a relatively bearish signal,” said Craig Moffett, analyst at Sanford Bernstein. “The Board’s unwillingness to do so is, on the other hand, a sign of greater confidence (albeit from a greater distance), as was Metro’s willingness to take it. In any case, there may not be alternatives to issuing equity as a currency; the company’s debt load is already precariously large."
UBS Analyst John Hodulik said Hesse’s willingness to sign a deal using stock valued at about $2.40 a share a few quarters before it was set to launch its Network Vision initiative is “cause for concern” on the future of Sprint. “This is especially true given our belief that Sprint is the only buyer” looking at MetroPCS, he said. “The biggest challenge that Sprint has in getting a MetroPCS deal done is the perception that CEO Dan Hesse is juggling too many balls in the air at the same time,” said BTIG Research analyst Walter Piecyk. “The reality is that a good management team could likely swallow MetroPCS while executing on Network Vision and attempting to return to post-paid growth.
Sprint’s problems shouldn’t be a surprise given the challenge of competing with AT&T and Verizon, said Free Press Policy Director Matt Wood. “Those two giants have been incredibly successful at tilting the regulatory playing field in their favor, and the Commission has too often failed to promote real competition in the wireless market,” he said. “But we hope that this FCC’s strong stance against further consolidation in the AT&T/T-Mobile proceeding, and its willingness to reconsider just how much spectrum the big two can devour going forward, are both signs of better things to come.”
"The chief question in such a deal is how the FCC would treat Sprint’s spectrum holdings for purposes of the spectrum screen,” said Public Knowledge Legal Director Harold Feld. “While Metro has relatively modest spectrum holdings, hostile parties could try to make an issue of this -- possibly in the hopes of muddying the waters for future spectrum acquisitions.” But Feld said “as a practical matter … I think the FCC would welcome any development that made Sprint or T-Mobile a stronger competitor that did not eliminate an existing national competitor.”