(Bloomberg Gadfly) -- Sprint Corp. is proving more desperate than we thought.
Rather than continue down the road to a logical -- and until now, inevitable -- strategic merger with T-Mobile US Inc., the struggling wireless carrier has put that plan on hold in favor of what looks like a financial salve. It may say more about Sprint's weakness than investors buoyed by Tuesday's share-price rally would like to admit.
Sprint, which slid to fourth place two years ago behind T-Mobile and burned through billions of dollars trying to stay competitive, is now reportedly in exclusive discussions with cable giants Charter Communications Inc. and Comcast Corp., as its regretful Japanese owner Masayoshi Son looks for an out. The messy, almost soap-opera-like story line is only getting messier.
Rather than nail down a deal with T-Mobile first, which shareholders of both companies could easily get behind, Sprint is negotiating with two far more powerful companies that will use its network to their advantage and may not even make an accompanying equity investment in the company. The Wall Street Journal notes that the cable operators could help Sprint build its next-generation network, which is help Sprint needs. But a takeover or merger would be a more assured outcome for shareholders than waiting to see what sort of complex agreement Charter and Comcast's shrewd dealmakers work up. (Ask Pandora Media how that's worked out.)
On the one hand, none of this necessarily precludes an eventual merger with T-Mobile or takeover by either Charter or Comcast later on. Still, Sprint's challenged financial position has to be driving frustrated parent SoftBank Group Corp.'s sudden dealings with Charter and Comcast. They, too, could have opted for T-Mobile, but why when Sprint has far less bargaining power?
Depending on where you live, you may have noticed new TV commercials this month for a Comcast wireless service, which is marketed under its less-detested consumer brand Xfinity. The $188 billion juggernaut wants to bundle mobile plans with its cable, internet and wireline phone packages to assert its power over the communications space ahead of the introduction of ultra-fast 5G networks that will enhance video-streaming capabilities, among other things. To this end, Comcast and Charter, which plans to introduce its own wireless offering in 2018, recently formed an alliance, and both have old agreements with Verizon Communications Inc. that allow them to re-sell wireless service using the No. 1 provider's network in their respective territories as a supplement to their own Wi-Fi hotspots. But it's not enough to get them where they want to be.
This is where Sprint -- which sits on a trove of spectrum -- comes in. Predictably, you have Comcast CEO Brian Roberts on one side pushing for an agreement with Sprint that would be similar to the Verizon accord but with better terms. And on the other side sits billionaire dealmaker John Malone, Charter's biggest backer, characteristically encouraging a joint outright takeover of Sprint. It's an odd pairing as the two have historically employed very different strategies, and rarely is a Malone-led transaction a straightforward one.
The knee-jerk reaction Tuesday is that T-Mobile is being left out in the cold. But that's not quite the case. T-Mobile has no urgent need to sell itself or find a partner -- in fact, its successful strategy is what's caused Verizon and AT&T Inc. to scramble to offer competitive unlimited data packages. Of course, T-Mobile would be stronger with Sprint, but that deal is still possible and in the meantime it will probably just keep taking customers.
Everything is fluid. Charlie Ergen and his Dish Network Corp. are still out there lurking and, despite outward appearances, likely interested in playing a role in the industry consolidation. It wouldn't be surprising to see Ergen again try to upset a Sprint or T-Mobile transaction. And Verizon, whose CEO Lowell McAdam even floated the idea of merging with Comcast before the Charter partnership got announced, could intervene somehow as well.
With this many big and unpredictable personalities involved, a lot could change in the coming weeks and months. It would be way premature to suggest Sprint and T-Mobile have suddenly traded places. The safer bet is still on the one with the better business, not the desperate seller.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.