Much the chatter and speculation on how the wireless industry may evolve as AT&T attempts to acquire T-Mobile for $39 billion concludes with a common question: Will Verizon acquire Sprint next? After all, the AT&T, T-Mobile deal will result in the combined carrier possessing 39% of the market, surpassing Verizon's current industry-leading 31% share. But if Verizon acquires Sprint, it would be back on top with 47% of the market. Yesterday, however, Verizon's CEO said the company isn't interested in purchasing Sprint. This makes sense for several reasons.
The AT&T, T-Mobile Deal Is a Reaction, Not a First Move
We're naturally tempted to wonder about whether Verizon would want to purchase Sprint in the first place because it seems like AT&T's action deserves a Verizon reaction. But actually, it's the other way around. In 2008, Verizon acquired small rival Alltel for $28 billion. One industry source I spoke with said that, in many ways, what Alltel did for Verizon is similar to what T-Mobile would do for AT&T. Verizon does not need to react: its strategy is already set.
The AT&T Deal Is a Spectrum Play
That same source believes that the AT&T, T-Mobile deal is all about spectrum -- the scarce resource that provides wireless carriers with network capacity, rationed by telecom regulators. This week's deal will provide AT&T with more spectrum to play with, something it needs if it wishes to expand its network. And as providers push out their 4G networks, they'll need even more spectrum to satisfy the additional capacity that mobile users will demand.
Due to the Alltel acquisition, Verizon is already fairly well positioned with spectrum. Buying Sprint isn't necessarily the best answer to obtaining additional spectrum for the firm. For starters, it may have the opportunity to obtain some spectrum as a concession of the AT&T, T-Mobile deal. Moreover, as 4G rolls out more broadly, regulators are going to be forced to provide these carriers with additional spectrum, with a shortage looming.
Sprint Does Little for Verizon
Then, there's the question of what Sprint really does for Verizon anyway. Verizon's nationwide coverage map won't be significantly improved by acquiring Sprint. But more importantly, an acquisition doesn't serve the Verizon's strategy for its 4G Long Term Evolution (LTE) platform growth. Sprint owns WiMax, which is a 4G platform, but is not LTE. A source I spoke with familiar with Verizon says that Sprint is also working separately on LTE, but Verizon is much further along. Acquiring Sprint would provide Verizon with little additional advantage competing in the 4G landscape.
Unless Sprint Becomes a Bargain
For the reasons above, it seems plausible that Verizon wouldn't really be interested in Sprint -- at this time. If the AT&T, T-Mobile deal goes through, Sprint is going to have an even tougher time competing. And the firm is already having trouble, as profit has been elusive for the company over the past several years, culminating in a $3.5 billion loss in 2010. The AT&T, T-Mobile news isn't helping matters either. Sprint's stock is down 11% since its close on Friday, before the deal was announced.
If the company's value continues to decline, then at some point, Verizon could simply decide that obtaining Sprint's spectrum could be worth the firm's cost. And if regulators approve the AT&T, T-Mobile deal, it may be hard for them to deny a Verizon, Sprint deal. After all, why would they forbid one acquisition if the other is approved?
So for now, we probably won't see Verizon pursue Sprint. It doesn't have much incentive to bother acquiring the third-biggest mobile service provider. It's comfortable enough with its current spectrum capacity that it can move forward with its strategy, which should allow it to compete fiercely with AT&T, even if it does get T-Mobile. But if Sprint continues to struggle, Verizon could be more interested in scooping it up for cheap in the years to come.