Sprint Jumps on the Dog Pile and Sues AT&T

September 7th, 2011 by Trefis Team
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In less than a week after U.S. Justice department filed an antitrust lawsuit to block AT&T’s (NYSE:T) planned $39 billion acquisition of T-Mobile, yesterday Sprint (NYSE:S) filed with its own lawsuit to block this deal. [1] In its lawsuit, Sprint mentioned that if the deal goes through, it would harm consumers and weaken Sprint’s ability to compete with AT&T and Verizon (NYSE:VZ). In our earlier note titled Government Delivers Blow to AT&T and T-Mobile Deal, we had discussed that DOJ lawsuit was a nasty setback for AT&T, with Sprint the biggest beneficiary if the deal doesn’t go through.

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Our $4.75 price estimate for Sprint stock is about 40% above market price.

Motivation Behind the Lawsuit

Sprint has always vehemently opposed this deal saying that it could put the rest of the telecom industry at the mercy of AT&T and Verizon. Sprint argued that the deal would make the U.S. wireless market an effective duopoly, and one of the effects would be that Sprint would not have access to the best wireless handsets, an important parameter in attracting subscribers in the U.S. telecom market.

While Sprint does not sell the Apple iPhone currently, it is widely rumored that it will start selling the iPhone 5 from October this year. If Sprint does get iPhone 5, it will actually weaken this one argument against the deal, something we discussed on our earlier note titled AT&T May Benefit the Most from Sprint’s iPhone Deal.

Now that the DOJ has played its hand and said that overlapping markets include 90% of the major wireless markets, AT&T would have to agree to selling assets in a significant number of markets to even come close to what the DOJ would view as fair competition. And so even though Sprint has a clear bias in the outcome of this case, its lawsuit adds an additional hurdle for the proposed AT&T and T-Mobile deal on top of the DOJ suit and gives Sprint a voice in the proceedings as it would be one of the natural buyers to any assets that AT&T and T-Mobile would need to sell.

See our complete analysis for Sprint stock here

Notes:
  1. Sprint sues to block AT&T’s proposed T-Mobile buy, Reuters, September 6th, 2011 [↩]