It looks like the proposed AT&T/T-Mobile USA merger is not hurting Sprint-Nextel Corporation (NYSE: S), judging from its stock price.
After taking a nosedive on the announcement that AT&T Inc. (NYSE: T) planned to purchase T-Mobile USA from its German parent, Deutsche Telekom AG, Sprint-Nextel’s stock has been climbing. On March 21, when AT&T proposed the T-Mobile buyout, Sprint-Nextel’s stock closed at $4.36. The stock closed Friday at $5.19.
That’s a 19-percent increase in almost three months — a healthy gain.
Some of the rise in price may have to do with a recent announcement that Sprint-Nextel is getting two new smartphones from Motorola Mobility Holdings Inc. According to a Sprint-Nextel press release, Motorola is making available to Sprint-Nextel the Photon G, a super smartphone with a dual core, 1 Ghz processor.
Motorola is also making available to Sprint-Nextel’s subsidiary, Virgin Mobile USA, the Triumph, a phone based on the Android operating system and designed for the prepaid sector.
Sprint-Nextel also announced that it would release a total of 11 new wireless devices this year.
Analysts believe that this announcement is part of Sprint-Nextel’s strategy to prepare for a worst-case scenario where AT&T’s proposed $39 billion purchase of T-Mobile USA is approved by the Federal Communications Commission and the Federal Trade Commission.
The company’s “Next Vision” program, where Sprint-Nextel would fully integrate the Sprint and Nextel portions of its networks, was supposed to take a few more years to complete, according to analysts at Morningstar.
In addition, the demand for smartphones, which, according to Morningstar, carry big subsidies, may reduce company profits even further, thus putting increased pressure on Sprint-Nextel to operate as the third-largest national carrier in an oligopoly market. In terms of its network, only AT&T and Verizon Wireless have the resources to fully invest in a 4G network.
Ironically, T-Mobile USA, which has argued before Congress that it will not have the necessary financial support to move forward with investment in a 4G network, has been experiencing yearly profit-per-customer of $180 versus Sprint-Nextel‘s yearly profit-per-customer of $100.
What does this mean for consumers? Sprint-Nextel is in a position, albeit costly, to leverage its new smartphone offerings to grab more postpaid and prepaid customers, particularly those who may not want to subscribe to AT&T. Sprint-Nextel could target its Sprint wireless brand toward higher end consumers while targeting the prepaid tier with its Boost Mobile and Virgin Mobile USA brands.
For regulators, Sprint-Nextel’s accelerated move to meet smart phone demand may raise this question: Given Sprint-Nextel’s three brands, its attempts to further integrate its network, and its investment in smartphones, can the company still argue that there is evidence of an anticompetitive effect from AT&T’s purchase of T-Mobile USA?