SoftBank Chairman and CEO Masayoshi Son
Photograph by Getty Images

SoftBank abandoned talks to acquire T-Mobile two years ago.

By Reuters
February 17, 2017

Japan’s SoftBank Group is prepared to give up control of Sprint to Deutsche Telekom’s T-Mobile U.S. to clinch a merger of the two U.S. wireless carriers, according to people familiar with the matter.

SoftBank has not yet approached Deutsche Telekom to discuss any deal because the U.S. Federal Communications Commission has imposed strict anti-collusion rules that ban discussions between rivals during an ongoing auction of airwaves.

After the auction ends in April, the two parties are expected to begin negotiations, the sources told Reuters this week.

Two and a half years ago, SoftBank abandoned talks to acquire T-Mobile for Sprint amid opposition from U.S. antitrust regulators. That deal would have seen Deutsche Telekom retain a minority stake in T-Mobile, down from about 65%.

Deutsche Telekom Chief Executive Tim Hoettges has said in recent months that the German company is no longer willing to part with T-Mobile, prompting SoftBank to explore a new strategy to achieve a potential combination, the people said.

SoftBank, which owns about 83% of Sprint s , has been frustrated with its inability to grow significantly in the United States on its own, where both Sprint and T-Mobile tmus have struggled to compete with Verizon Communications vz and AT&T t , the two largest U.S. carriers with much deeper pockets.

Investors have said a merger between T-Mobile and Sprint, ranked third and fourth respectively, would still face antitrust challenges, but made strategic sense as the industry moves to fifth-generation wireless technology. Carriers will need to spend billions of dollars to upgrade to 5G networks that promise to be 10 times to 100 times faster than current speeds.

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While SoftBank is still open to discussing other options, it is now willing to surrender control of Sprint and retain a minority stake in a merger with T-Mobile, the sources said. They asked not to be identified because the deliberations are confidential.

SoftBank, Sprint, Deutsche Telekom, and T-Mobile all declined to comment.

“We may buy, we may sell. Maybe a simple merger, we may be dealing with T-Mobile, we may be dealing with totally different people, different company,” SoftBank Chief Executive Masayoshi Son told analysts on the company’s latest quarterly earnings call earlier this month.

With the advent of 5G, Deutsche Telekom may receive offers for T-Mobile from other U.S. companies, such as Dish Network dish and Comcast cmcsa . Sprint could also be an acquisition target for other companies, the sources said.

Dish declined to comment and Comcast did not immediately respond to a request for comment.

DISCOUNTING PLANS

Reuters could not determine how much of a premium SoftBank may want Deutsche Telekom to pay for control of Sprint, which has a current market valuation of $36 billion.

T-Mobile’s market value stands at $50 billion, which is about $20 billion higher than when it was last in merger talks with Sprint in 2014.

While Sprint’s market value has changed little since then, T-Mobile has overtaken Sprint as the No. 3 wireless customer in terms of numbers of subscribers. T-Mobile said it had 71.5 million total customers while Sprint had 59.5 million at the end of 2016.

T-Mobile is now almost as big as Deutsche Telekom’s German business. “We are not in the mood of selling the business,” Hoettges told investors last November.

Under John Legere, its combative, T-shirt wearing chief executive, T-Mobile has rolled out unlimited data plans and international roaming packages. Combined with aggressive marketing, this has boosted T-Mobile customer base at the expense of its rivals.

While Sprint has also been growing its customer base as of late and improving its financials under CEO Marcelo Claure, it has done so primarily through heavy discounting. Despite new investment, the company’s network is still viewed by many consumers as weaker than its rivals.

Barclays analysts wrote in a note in December that a merger of T-Mobile and Sprint could result in $25 billion to $30 billion in synergies but said, “it is not imminently clear to us that the various regulatory agencies would reverse course having already blessed the outcome of a four-player market.”

The FCC and the U.S. Department of Justice sent strong messages in 2014 that they did not want Verizon, AT&T, Sprint, and T-Mobile to merge among themselves.

Since then, AT&T acquired satellite television provider DirecTV and has signed an agreement to buy media giant Time Warner twx , though that deal is still under regulatory review and has attracted criticism from U.S. President Donald Trump. Verizon has also been exploring other acquisitions.

Craig Moffett, an analyst at MoffettNathanson, said price wars between Sprint and T-Mobile have driven down overall wireless prices.

“Antitrust regulators could well argue that this is precisely the dynamic they would want to preserve,” Moffett added.

Son has said he expects his company to benefit from Trump’s promised deregulation of the U.S. economy. After meeting Trump in early December, Son pledged to invest $50 billion and create 50,000 jobs in the United States.

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