A sad reality: Sprint and T-Mobile might be too small to succeed

Why The Sprint T-Mobile Merger Is Good

Sprint and T-Mobile may constantly trade barbs with one another but there is a case to be made that they’d be better off coming together as one happy Framily. FierceWireless flags a new research note written by analysts at New Street Research claiming that Sprint and T-Mobile simply stand no chance of competing with AT&T and Verizon over the long haul if they don’t merger into a larger carrier that has the spectrum and financial resources to build a first-rate nationwide LTE network.

Our analysis shows that neither Sprint nor TMUS have enough revenue to cover their fixed costs and it is highly unlikely that both will capture enough new revenue to do so,” New Street Research writes. “Both companies aren’t independently viable at the same time. We show that there simply isn’t enough revenue in the industry for four carriers to cover their fixed costs unless there is a significant shift in market share.”

How bad are things likely to get? New Street projects that Sprint will likely burn through $6 billion before it starts becoming consistently profitable again in 2017. Meanwhile, T-Mobile’s aggressive moves to attract new customers such as paying off early termination fees will force it to burn through around $300 million this year, New Street estimates. The companies will also both need to bid big to win some of the 600MHz spectrum that’s going up for auction next year, which won’t be an easy task given how aggressively Verizon and AT&T will bid to win the rights to use it instead.

“If the companies merge now, while they are in relatively good shape, the merger will result in lower costs in the context of an improving business, which our data suggests should lead to investment and lower prices,” New Street concluded. “If the companies are only permitted to merge when one has faltered or failed, the combined company will be less well-positioned to compete against the two well-funded incumbents.”

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