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Shares of Sprint (S) are down 16% on news that AT&T (T) is buying T-Mobile from Deutsche Telekom (OTCQX:DTEGY) in a $39 billion deal, as investors begin to question the direction that Sprint is heading. The AT&T purchase will combine the second- and fourth-largest wireless providers in the U.S., and would have 129 million subscribers, more than current market leader Verizon Wireless, jointly owned by Verizon (VZ) and Vodafone (VOD), which has 102 million subscribers. Both the companies would serve nearly twice the 50 million subscribers that Sprint serves, meaning Sprint will need to grow quickly in order to remain relevant in the space. Here are a few of Sprint's options:

Clearwire Corp (CLWR): Sprint has already poured billions into Clearwire, and owns 54% of the company, so deepening the relationship with Clearwire makes the most sense. Clearwire is rolling out 4G services through its WiMAX technology, but needs billions of more dollars to continue the rollout of its network, which will be costly for Sprint. Acquiring the rest of Clearwire would allow Sprint to better control Clearwire, at the same time locking up the valuable spectrum Clearwire owns.

However, Clearwire only has about 4.4 million customers, so this deal would not help Sprint catch up in terms of size in a meaningful way. Sprint has spent a lot of money on the Clearwire partnership, and it would be surprising for it to give up on the deal. That being said, this would surely be an expensive deal for what is a very small company in terms of subscribers. Clearwire has a market cap of $1.2 billion.

MetroPCS (PCS): MetroPCS's roughly 8 million subscribers look much more valuable today, given the size the new AT&T will be. MetroPCS is also a strong player in the pre-paid segment of wireless services, which would help complement Sprint's growing pre-paid business. While this deal would be much more expensive for Sprint than Clearwire, MetroPCS is more of an established company then Clearwire, potentially making the acquisition more attractive. MetroPCS has a market cap of $5.6 billion.

Leap Wireless (LEAP): Perhaps the cheapest of the three options, acquiring Leap would add 5.5 million subscribers to Sprint at a relatively low cost. Leap is pushing to expand nationally, and a Sprint acquisition of the company would allow for this expansion to happen faster, and at a lower cost than if Leap were to go it alone. Leap has a market cap of $1 billion.

Another option would be for Sprint to put itself up for sale, either to Verizon Wireless or potentially to one of the cable companies. I see this as unlikely because I'm not sure there is a willing buyer. The AT&T deal will get a very hard look from regulators, and if it gets approved, it seems unlikely that a Verizon Wireless-Sprint tie up would then get approved as well, given the duopoly that would create. Comcast (CMCSA) has repeated that it is not interested in buying a wireless service provider; it and Time Warner Cable (TWC) are already backers of Clearwire. Sprint's $12 billion market cap is shrinking as its shares plummet, but it would still be a large price for a company that seems to be stuck at a crossroads.

From a business perspective, I think Sprint needs to go after either Leap of MetroPCS relatively quickly, attempt to fight the AT&T / T-Mobile deal in the courts, and lay out a more focused Clearwire plan. MetroPCS and Leap are effectively in play because of their small sizes, so Sprint should move to acquire one before either Verizon Wireless picks one up, or the two attempt to merge. Attempting to break up, or at least slow, the AT&T deal buys time for Sprint to make a move and evaluate its options. Sprint could acquire any assets that the government makes AT&T divest as a condition of allowing the merger, but waiting on that possibility is not the best use of time.

None of these scenarios seem to provide a positive upside catalyst for Sprint shares, as the market is reflecting today. Investors looking for a short can likely lay into Sprint here, looking for shares to break further down, and test at least the $3.80 levels seen in December. All Sprint's options are costly, and the company is being forced into action by industry consolidation. Expect shareholders to foot the bill.

Source: Sprint's Options, Post-AT&T / T-Mobile Deal