Once again, rumours surface about T-Mobile and Sprint merger

Financial services giant (and massive bailout recipient) Citigroup has breathed new life into a recurring rumour. The company has raised its share price rating for Sprint Nextel, and is claiming that there is a good possibility Sprint and German owned T-Mobile will merge in the next 12 months.

What’s going on now?

Citigroup analysts have declared that the Sprint share price rating is now 6% higher. According to Cellular News, an analyst from the financial institution has declared that the chances of a Sprint-T-Mobile merger in the next 12 months is now 55% (where do they get these wonderful figures?).

What would that mean?

T-Mobile and Sprint are in third and fourth place when it comes to mobile operators in the United States. Verizon and AT&T still rule the roost - but a merger between the smaller companies would result in a single operator of the same size as AT&T. That would give them both a much better chance of competing against the two front runners.

Not only that, but Sprint hasn’t had the best year. Despite large gains for its pre-paid subsidiary, Boost Mobile, it still posted a large overall loss for the year, with 135,000 retail subscribers jumping ship. In November, Sprint announced a huge round of layoffs as a cost cutting mechanism. And as we saw in the UK this year, T-Mobile parent company Deutsche Telekom isn’t shy about merging its company upwards.

What would this mean for Sprint and T-Mobile customers?

It’s hard to tell from here - after all, this is just a rumour. But it would be a very complicated merger. The merger of Orange and T-Mobile in the UK has been anything but plain sailing. We received “final confirmation” of the merger back in November… but even then they said that they were still waiting on “approval by the relevant authorities“. It’s a big and messy process - and it will be even bigger and messier in the States. After all, Sprint just finished buying Virgin Mobile USA.

And if you bring the technology side of things into it, it gets even messier. Sprint networks run on CDMA infrastructure, while T-Mobile runs on the GSM technology that is more common in the European countries that Deutsche Telekom services. Bodging these two systems together into a single, pan-American network would require a phenomenal investment of time and resources.

What we think?

So, Citigroup raised the Sprint Nextel share price rating by 6%, eh? I have to admit that I don’t know what that means. I’m not an economist - as far as I’m concerned Citigroup could speaking some made up space language, like Enya. Thinking about merger rumours like this can be very twisty, so I’ve broken my thoughts down into three basic points:

Would this merger make sense? Looking at the market positions of the companies, a merger would strengthen them both considerably.

Could this happen? Given the precedent both companies have for purchases/mergers, yes it really could. But the complications arising from the merger, both legal and technical, could mean it is genuinely more trouble than its worth.

Is Citigroup just attention mongering? It’s quite possible that Citigroup is just making outlandish claims and resurrecting an old rumour in order to attract some attention.