Why T-Mobile Would Rather Merge With Big Cable and Not Sprint

March 8, 2017, 4:04 PM UTC

T-Mobile CFO Braxton Carter didn’t mention Sprint or Comcast by name on Wednesday when he was asked about possible mergers in the communications industry. But it was crystal clear from his answers that the fastest growing wireless carrier for the past three years sees itself as a better match to expand with big cable than to tie up with the smaller, struggling mobile player.

With the election of businessman Donald Trump as president—and amid heavy lobbying for favors from Sprint majority owner and Softbank Group founder Masayoshi Son—many on Wall Street see a Sprint merger with T-Mobile as increasingly likely. Son tried that move in 2014 but was thwarted by Obama administration antitrust regulators.

However, there’s apparently little to no interest in reviving the deal in the executive suite at T-Mobile. When asked about such a deal, which would lower the number of national wireless carriers from four to three, Carter was rather pessimistic and even a bit threatening.

“Conventional wisdom would tell us that there’s a different regulatory environment out there that could be more conducive to consolidation,” Carter said, speaking at a Deutsche Bank investor conference.

But the career lawyers in antitrust regulation who made the case against the earlier Sprint-T-Mobile merger have not changed due to the election, he noted: “While the odds certainly have potentially increased, I don’t think it’s the least bit probable with high likelihood that you could actually transact given some of the precedents.”

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Furthermore, Carter indicated that Sprint would have to include a large breakup fee in any offer so that T-Mobile would be compensated if regulators blocked the plan again. With T-Mobile’s strong subscriber gains and growing revenue and profits, “we’re in the best position of all,” Carter said.

“If there was a potential transaction, it would be extremely important on how it was positioned and what the consequences were if ultimately it did not go through from a regulatory standpoint, i.e. a very significant breakup fee,” he added.

Some of T-Mobile’s success over the past few years has been built on the $4 billion of cash and airwave licenses it got from AT&T as a breakup fee when AT&T’s proposed acquisition of T-Mobile was blocked in 2011.

“You know we’ve had very good experience with that in the past,” Carter explained. “It certainly helped the future trajectory of what became T-Mobile.”

And while some anonymously-sourced stories have indicated Sprint (S) intends to revisit the possible deal soon, Carter indicated nothing was stirring yet. “There are no conversations of any type going on with anybody in that ecosystem,” he said.

T-Mobile (TMUS) also has no interest in following AT&T’s strategy of buying a major entertainment producer. AT&T (T) last year committed $109 billion to buy Time Warner (TWX). “We took a very different approach,” he said. “Us going and getting aggressive and buying content, I mean, that’s just not who we are, that’s not what our model is.”

By contrast, Carter was about as positive as he could be when asked about the possible “convergence” of wireless and cable companies.

“I really think it’s a question of when, not if,” Carter said. “There are significant benefits that we’ll see from convergence both from a wireless carrier standpoint and as well as a broadband cable standpoint.”

Combining a wireless and cable network would provide myriad benefits, Carter explained, including lower operating costs and “amazing monetization opportunities” with more personalized advertising. “You need the integration to really achieve this,” he concluded.

Comcast (CMCSA) and Charter Communications, the two largest cable operators nationwide, have said they’ll begin offering new wireless services later this year. The services will depend on airwave rights leased from Verizon (VZ) and the cable companies’ huge network of Wi-Fi hotspots. Verizon CEO Lowell McAdam has also mused about a wireless-cable connection.

Cable companies don’t operate nationally and their network assets are regionally concentrated, Carter pointed out in making the case for a merger.

“How do you really create that national scale that’s really important,” Carter asked. “I think that’s why eventually we’ll get to the point where convergence will become a reality.”

It’s a reality for which T-Mobile—and its investors—are obviously hankering.

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