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Don't Count on Carlos Slim Butting Into a Sprint and T-Mobile Merger

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First Posted: Jul 24, 2014 05:00 PM EDT
Carlos Slim
(Photo : REUTERS/Jorge Adorno)

Sprint and T-Mobile are on the verge of announcing a merger, but speculation still swirls about the roadblocks ahead. The latest? Why, it's none other than the second-richest man in the world, Carlos Slim.

According to The Wall Street Journal, Carlos Slim and his Latin American-based telecommunications company America Movil SAB are planning on shedding more than 20 percent of their assets to avoid regulatory stress. All in all, that will net Slim a cool $15 billion: a sum that has raised questions about whether Slim plans on using the cash to invest overseas.

Slim also owns TracFone Wireless, a prepaid wireless carrier in the United States. Some believe that Slim could go after T-Mobile as a way of bolstering his presence in the United States and as a way of leveraging TracFone into the market.

"A more meaningful entry into the U.S. with the acquisition of [T-Mobile] could make strategic sense," UBS analyst John Hodulik told the Journal.

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There's also the argument that Slim's proposal to buy out T-Mobile will face less regulatory scrutiny than the current situation with Sprint. True, TracFone and Slim's telecommunications assets seem far less threatening to lawmakers worried about too much consolidation than a merger involving the No. 3 and No. 4 U.S. carriers, but don't count on it happening.

As TeleGeography reported, America Movil squashed the rumors earlier in the week during the company's second-quarter earnings call. Management clarified that they had no intention of acquiring a carrier in the United States. Besides, talks between Sprint and T-Mobile are far too deep at this point for a quick turnaround to a foreign investor. A rudimentary deal has reportedly already been sketched out.

Sprint chairman and its parent company SoftBank's chief executive Masayoshi Son has been aggressively pushing for a takeover of Sprint. People close to the matter have said that T-Mobile CEO John Legere would head the new company if the reported $35 billion deal goes through. Son argued it's necessary to allow Sprint and T-Mobile to better compete with Verizon and AT&T and thus provide better service options to the American public. 

"I brought the network war and price war [to Japan]. I'd like to bring that to the States," Son said to industry officials in March. "I would like to provide an alternative to the oligopolistic situation that two-thirds of American households can only get access to one or two providers. I'd like to be a third alternative with 10 times the speed and lower price."

Verizon sits atop with 122 million subscribers, followed by AT&T with 116 million. Sprint only has 55 million and T-Mobile rounds out the top four with 50 million. It's easy to see that, even after combining forces, Sprint and T-Mobile would be behind AT&T, but the deal would make things easier moving forward.

Sprint and T-Mobile require a larger war chest to battle Verizon and AT&T in next year's FCC spectrum auction. Sprint and T-Mobile both require low-frequency spectrums in order to expand their currently poor suburban and rural footprints. The two companies are reportedly already in talks about forming a $10 billion coalition for the auction in case the merger doesn't go through.

"If you have more customers, you can afford to build a larger network," Hesse told CNET in an interview. "Only then do you have the revenue to justify building in smaller suburbs and rural areas.

"If you live in an urban core, you will have access to AT&T and Verizon, and you'll also likely have access to T-Mobile and Sprint. But when you go to less populated areas, Sprint and T-Mobile might not be there."

Regulators are iffy on allowing a consolidation move that would reduce the number of national carriers from four to three. This could hurt consumers, they say, because less options means less competition means higher prices. The reality of the situation, however, is yet to be decided, as Sprint and T-Mobile have not presented a full deal to the government.

 

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