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Sprint Nextel may purchase T-Mobile USA

tmobile-sprint-mergerSprint Nextel is reportedly in talks with Deutsche Telekom AG to discuss the possibility of purchasing its T-Mobile USA division, according to unnamed sources who spoke with Boomberg. If made official, the deal would reportedly give Deutsche Telekom a “major stake” in the Sprint Nextel-T-Mobile USA entity.

The deal is far from final, however, as the talks have reportedly been intermittent. According to sources, the biggest hang-up in the deal has been the valuation of T-Mobile USA, which decreased in value during the fourth quarter of 2010, while shares of Sprint and Deutsche Telekom went up.

London-based Evolution Securities has placed the value of T-Mobile USA at between $15 billion and $20 billion. According to Michael Kovacocy, an Evolution analyst, Deutsche Telekom is probably expecting to get around $25 billion in the sale.

Sprint and T-Mobile — the third- and fourth- largest wireless carriers in the US — have had an increasingly difficult time competing with the powerhouses of AT&T and Verizon, each of which have larger networks — and, not coincidentally, carry Apple’s iPhone. Merging Sprint and T-Mobile into one could create and edge over AT&T and Verizon.

To make matters even more complicated, Sprint and T-Mobile operate on entirely different 3G networks, and their 4G networks are different as well, with Sprint currently operating on Clearwire-owned WiMax and T-Mobile pushing HSPA+.

If the companies were to merge, they would have to operate two separate 4G networks until they decide to dump one, and go full-bore with the other.  (Or just go with LTE 4G across the board, as Sprint may do.) Either way, the merger would be costly.

Regardless, if such a merger does go through — and there’s no guarantee that it will — the effects on the mobile market in the US would me huge and far-reaching, and could come to define the future of wireless technologies.

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Andrew Couts
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