Sprint is dreaming...

According to Fierce Wireless and WSJ, Sprint is considering a bid for T-Mobile to bring the four national carriers down to three and ease competition.

If these rumors are true, I think it is extremely doubtful that this deal will actually happen for several reasons.

Government Approval

The FCC and Department of Justice blocked the AT&T/T-Mobile merger, partially on the grounds that it would reduce the number of national carriers from four to three. I don't see how that has changed in any major way that would increase the odds of Sprint/T-Mobile succeeding to merge.

Most competitive wireless markets internationally have four or more national carriers. This competitive pressure keeps margins low, quality of service high and forces the carriers to keep innovating in order to keep churn low and attract new customers. It is of course a pain for the carriers, but great for everyone else.

A merger would not solve the problems facing T-Mobile and Sprint

While a merger probably would reduce the competition among the carriers, easing pressure on margins and short-term help the profitability of the carriers, it will not solve the root cause of their problems.

If we start with Sprint, their problems have been the same now for a long time. First of all, they lack sufficient low-frequency spectrum to compete on a level playing field with AT&T and Verizon. 

Second, they have (and have had) significant problems with management execution skills. If past mergers are any indication, this would be a disaster. They also have a hard time understanding that Sprint is not AT&T or Verizon, just a little bit smaller. If Sprint is to prosper, they have to do something different than the big two. Start competing. Figure out what your strengths are and use them to your advantage. Above all, try and add value to your customers and the market place at large. If you do not, I see no reason for Sprint to exist.

For T-Mobile things are a little different. While they also lack enough low-frequency spectrum to compete well with AT&T and Verizon, and could probably do with more high-frequency spectrum as well, they have recently figured out that it is not enough just to show up, they have started to compete for the attention of potential customers. T-Mobile has recently been quite innovative when it comes to packaging and pricing of their services trying to add the most value to their addressable market.

If no merger, then what?

While a merger is not one of them, there are several things that T-Mobile and Sprint can and should be talking about.

The biggest one is network sharing. They should consider combining their networks and spectrum portfolios in order to lower cost, provide better coverage and capacity and serve their customer better. In addition this will give Sprint an opportunity to move faster on LTE and shut down their CDMA network early. It goes without saying that a network sharing entity should be run by T-Mobile to avoid disaster.