T-Mobile Is in a Much Better Position Than Sprint

On Nov. 4,

We believe a deal would have helped both firms as it would have provided the scale necessary to compete long-term against Verizon and AT&T. Separately, we believe T-Mobile is in a much better position than Sprint. At the rumored deal price around the $7-$7.50 range Sprint had been trading at, we thought most of the value of the deal was going to Sprint’s shareholders. When the Nikkei first reported about a week ago that Softbank (Sprint’s controlling shareholder) was looking to back out of the deal if it didn’t have control of the new company, which Deutsche Telekom (T-Mobile’s controlling shareholder) had said wouldn’t happen, Sprint’s stock took a hit and we expect a further one when the market opens Monday. T-Mobile has done a great job over the past four years gaining the majority of new wireless subscribers in the U.S. While we expect it will continue to gain the majority of new customers in 2018, we think it will struggle to generate the returns needed to keep up with ongoing network investments funded by the much larger free cash flows generated by Verizon and AT&T. We believe Verizon in particular will use its extensive free cash flow to quickly roll out a 5G network, which will again reestablish the firm as having the best wireless network in the U.S.

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