Dazzling stock gains may be at risk.
Investors are getting excited about a possible merger between wireless carriers Sprint and T-Mobile after President-elect Trump takes office and presumably appoints some pro-merger regulators. But analysts are warning that the excitement may be running ahead of reality.
Shares of Sprint had already gained 30% since the election last month before jumping another 9% on Wednesday on news of a meeting between Trump and Masayoshi Son, CEO of Softbank Group, which owns a majority stake in the carrier. Shares of T-Mobile have gained 16% in total since the election, including a 4% gain on Wednesday.
The rally is based on the idea that while regulators appointed by President Obama opposed a Sprint-T-Mobile merger, Trump appointees would allow such a deal even though it would reduce the number of major wireless carriers from four to three. Trump has already appointed three advocates of deregulation to oversee his transition at the Federal Communications Commission and a pro-merger lawyer for the Justice Department’s antitrust division.
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The problem is that since initial rumors of a deal in 2013, T-Mobile tmus has been gaining in value, while Sprint s remains somewhat troubled and over-leveraged, according to analyst Craig Moffett at MoffettNathanson Research.
Also, a deal would have a dramatic impact on the level of consolidation in the wireless market. The Justice Department typically relies on a measure of consolidation known as the Herfindahl-Hirschman Index. By the HHI, the wireless market is already moderately consolidated, but a Sprint-T-Mobile combo would send it through the roof, Moffett noted. The combined company would also own more spectrum licenses in some markets than the FCC permits.
“What all this does suggest is that finding common ground for a merger will be hard,” Moffett wrote in a report on Thursday. “And so too will getting a merger approved in Washington. We’re not saying it can’t be done, but we are saying that the odds being assigned to success are simply too high.”
Other analysts don’t think Softbank and Sprint can afford the deal anymore. Softbank just spent $32 billion to acquire chip designer ARM Holdings and now carries a hefty debt load itself.
Analyst Atul Goyal at Jefferies says the likelihood of Sprint buying T-Mobile has been “reduced” because of the ARM deal, while telecom analysts at Trefis think the growing price tag for T-Mobile, now trading at a market value of $48 billion, is beyond Sprint. “The chances are slim given T-Mobile’s high market cap and the presence of other potentiality deeper-pocketed bidder,” the analysts wrote on Wednesday.
For more on Softbank’s acquisition of ARM, watch:
Other possible bidders could include cable companies that are planning to offer wireless service next year, such as Comcast cmcsa and Charter Communications chtr . “T-Mobile could be targeted by Comcast or Charter looking to match AT&T’s bundle,” William Power, at Baird Equity Research, wrote. Such a deal would not reduce competition in the wireless market by eliminating a major player and instead may be seen as strengthening the market.
Still, some analysts engaged in flights of fancy, imagining a massive restructuring of the telecom landscape under Trump. Sprint could merge with both T-Mobile and Dish Network dish “to create a discounted quad-play service company with over 300 MHz of spectrum,” Timothy Horan, at Oppenheimer & Co, writes. That in turn could lead Comcast and Verizon vz possibly to merge as well. AT&T t then might buy parts of CenturyLink ctl , Frontier Communications ftr or Windstream win , Horan wrote, inflating the greatest hopes and dreams of every investment banker on Wall Street.
It could happen, but probably only in a dream.