Sprint Cannot Succeed on Its Own

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It appears, based on media reports, that a marriage between number four U.S. wireless carrier Sprint Corp. (NYSE: S) and number three carrier T-Mobile US Inc. (NASDAQ: TMUS) is off. Sprint needed the deal to remain viable.

Rumors are that Sprint’s major shareholder Softbank was unhappy with the agreement proposed by T-Mobile majority shareholder Deutsche Telekom. T-Mobile would have been the controlling party in any marriage

Sprint will have to settle with the smallest market share in a cutthroat sector that is no longer growing in the United States. There are more cellphones than people. The upgrade cycle of phones, which includes the launch of the new iPhone 8 and iPhone X, is another rotation in an endlessly changing inventory. The four large carriers rely on price cuts and an ever-changing set of broadband service price wars. The entire industry will soon make the immensely expensive transition from 4G to 5G service.

Sprint usually finishes last or close to last in surveys of wireless service, which makes its ability to claw back market share more difficult. Its revenue in the third quarter was $6.0 billion, down from $6.4 billion in the same quarter a year ago, At least Sprint’s net loss got better. It shrank from $142 million to $48 million. The company has $32.4 billion in long-term debt, financing and capital lease obligations.

Aside from T-Mobile, which has aggressively marketed its services and added millions of new subscribers in the past three years, Sprint is up against industry juggernauts AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ). Both companies are huge, based on revenue and subscriber count, and have added content ownership to their inventories of unique services. Sprint has neither the balance sheet nor the market cap to match those moves.

Sprint’s share price has dropped 28% this year to $6.34. The figure would have been worse if not for the T-Mobile M&A discussions. Its share price almost certainly will languish without a partner, and its options to expand its business have already eroded.