Deutsche Telecom Eyeing Sprint?

Reports have European telecommunications behemoth looking to increase its presence in the North American market...possibly by buying number three US mobile operator Sprint.

Reports in the Wall Street Journal and elsewhere have European communications giant Deutsche Telecom looking to expand its presence in the North American communications market, possibly my making a deal to purchase the U.S.’ third-largest mobile operator, Sprint-Nextel. If a deal were to go through, Deutsche Telecom would suddenly find itself the top mobile provider in the United States, since it already runs T-Mobile USA.

Deutsche Telecom CEO Rene Obermann has stated that he would like to expand the company’s mobile offerings through acquisitions, particularly as land-line business continues to decline. The company is also under pressure from the German government—which owns about a third of Deutsche Telecom—to make significant acquisitions in order to boost its share price.

However, any buyout of Sprint would require some significant financing and careful negotiation of regulatory hurdles. Sprint’s market capitalization is about $20 billion; Deutsche Telecom has about €2 billion in cash and assets, which means to finance a buyout, Deutsche Telecom would have to find partners, incur significant debt, or exercise a capital hike, none of which would go over well with investors.

Furthermore, a buyout of the third-largest U.S. mobile operator by a foreign company would likely incur sigificant scrutiny from U.S. regulatory authorities, who also may not be happy to see the number of major U.S. mobile operators dwindle from four to three. T-Mobile is currently the fourth largest mobile operator in the U.S., but it lags far behind Sprint, Verizon, and AT&T: a combination with Sprint would roughly triple the number of Deutsche Telecom subscribers in the United States to over 80 million. T-Mobile’s and Sprint’s networks also operate on fundamentally different technologies, complicating the task (and cost) of combining them.

The price of Sprint shares has declined almost 40 percent this year as the company struggles to retain subscribers and finance the rollout of its planned nationwide WiMax wireless broadband service.