BTIG Examines Dynamics Of An 'Unlikely' T-Mobile-Sprint Merger

BTIG said in a note released on Thursday it does not believe a T-Mobile US Inc TMUS– Sprint Corp S deal would receive regulatory blessings under the incoming administration, with the firm assigning a less than 20 percent probability. However, the firm believes an attempt to secure regulatory approval could trigger a long-awaited strategic move by cable operators.

T-Mobile's Cusp Of Generating Double-Digit Revenues

That said, the firm believes the competitive dynamics of the U.S. wireless industry will remain tame, as AT&T Inc. T and Verizon Communications Inc. VZ foci veer away from resisting the erosion of their wireless subscriber bases and toward Google and the cable industry. Accordingly, the firm believes T-Mobile can continue to generate double-digit revenue and EBITDA growth, resulting in material cash flow and even earnings per share over the next two years.

Opportunity For Sprint

BTIG also sees the development as an opportunity for Sprint, aiding its turnaround. However, the firm is skeptical about the company's use of the 2.5 GHz spectrum, which it feels would provide the differentiator in the market if deployed.

Verizon Vs. Sprint

• Verizon saw a contraction in the post-paid phone subscribers in the third quarter, while Sprint saw strong post-paid subscriber growth.
• Improvements in the network of Sprint and T-Mobile and their ability to communicate that in their ad campaigns is helping them win customers.
• Verizon doesn't seem to have the answer to the unlimited data rate plan offerings of Sprint and T-Mobile.

Lowering Estimates For Verizon

BTIG lowered its estimates for Verizon, while raising estimates for its three competitors, namely Sprint, T-Mobile and AT&T, premised on changes to gross add market share and churn estimates. That said, the firm believes Verizon can resist a rapid increase in churn until Sprint or T-Mobile can deliver superior network performance.

BTIG expects the adoption of phone insurance participation to increase ARPU by $1. The firm believes it would require sizeable new revenue opportunity to move the needle for the wireless industry, with IoT and big data, 5G, video consumption and moves over the top and across wireless data connections among the opportunities.

SoftBank To Be Aggressor In Sprint-T-Mobile Consolidation Talks

BTIG believes Sprint Chairman and SoftBank CEO Masa Son to rekindle the consolidation talks as soon as possible, but could face significant regulatory challenges. The firm sees $30 billion in synergies in the potential combination, which will also help T-Mobile avoiding the $20 billion-spend on incremental spectrum.

Rating/Price Target

• AT&T: Neutral.
• Sprint: Maintain at Sell, price target at $2.50 from $2.
• T-Mobile: Maintain at Buy, price target at $65 from $56.
• Verizon: Neutral.

At Last Check

• AT&T was up 0.94 percent at $37.50.
• Sprint shares were down 2.21 percent at $7.51.
• T-Mobile stock was up 1.1 percent at $53.31.
• Verizon shares were down 0.11 percent at $47.88.