For Sprint, Hot Pink Is a Red Flag
Investors may soon get a signal from Sprint. The No. 3 U.S. carrier by subscribers reports fourth-quarter results Tuesday. And they probably won't be pretty. Analysts say Sprint continued to bleed subscribers and that its network upgrade, forecast to be completed by midyear, appears behind schedule. Against this backdrop, taking the risky step of bidding for T-Mobile US, which it is considering, would be an acknowledgment that Sprint's prospects as a stand-alone company are faltering. Strong preliminary fourth-quarter subscriber additions from T-Mobile, reported last month, likely came at Sprint's expense. And T-Mobile's most recent offer to cover the fees new subscribers pay for early termination of contracts with other carriers may bode even worse for the current quarter. UBS estimates Sprint lost a net 300,000 postpaid subscribers in the fourth quarter and will lose a net 700,000 in the first quarter of 2014. Granted, Sprint has been saying for a while that 2014 would be a transition year as it invests in its network. But it has so far refrained from aggressive marketing, allowing T-Mobile to employ many strategies it might have used. Sprint may now be forced to act by undercutting T-Mobile's prices. That could hit profit. One way to end the pain: Bid for T-Mobile, a deal that could come with synergies with a net present value of $23 billion, according to New Street Research. Yet regulators have strongly hinted such a deal wouldn't be approved. And T-Mobile is likely to demand a sizable breakup fee, probably in the realm of $4 billion to $5 billion, New Street estimates. Moreover, the regulatory process would tie up Sprint for the better part of a year, during which time it would still need to do something dramatic to reverse its subscriber trends. For Sprint investors, a bid for T-Mobile should be more a sign of concern than a sign of confidence.