T-Mobile CFO Expresses Some Reservation on Wireless Industry Consolidation

At the Morgan Stanley conference, T-mobile CFO, Braxton Carter, expressed some reservation as to whether or not wireless industry consolidation would be approved by regulators:

Braxton Carter: “But when you look at an agency like the DOJ, the vast majority of the people within those agencies are career people and they use the same tools they always use, they use the same precedent in reviewing transactions and are you really in an environment where there is any surety that you can transact an industry consolidation?

It’s a huge issue. It’s a very, very large issue and if and I don’t know how you would ever call it highly probable. You could get through something like that, so if everything else was structured and determined where you thought you could create maximum shareholder value and really disrupt further the duopoly’s lock on the market here in the US and believed that this was the path towards the most value creation, in an environment where you didn’t have absolute certainty of a regulatory standpoint, it would have to be one hell of a compensation to take your business down that path at the risk that it may not happen.”

While this all may be jawboning from T-mobile in order to get a higher price in a potential M&A scenario, this commentary is very significant since it shows that T-mobile does not believe a Sprint / Tmo combination is a slam dunk.  The DOJ staff discouraged Softbank from pursuing a combination between Sprint and Tmo a few years ago, so with the DOJ staff still largely in place, why would the DOJ think differently now?

Mr. Carter does hint that if Tmo were to pursue a combination that would potentially receive significant regulatory pushback, then, the takeout price for T-mobile would have to be significant.  This is problematic for Sprint, which is currently trading at around half the market cap of T-mobile.  Simply put, Sprint may not have the financial capacity to pay a significant premium for T-mobile.

Even if T-mobile does not pursue a combination with Sprint, telecom analysts have speculated that T-mobile has other M&A options including a combination with cable players or DISH Network.

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