Sprint Nextel Mulls Breakup: Report

A spinoff of the Nextel unit makes some sense, given the rumored Deutsche Telekom bid. Analysts point out the difficulty of merging the three different technologies from the two companies: CDMA from Sprint, iDEN from Nextel and GSM from T-Mobile.

"What they would not do is try to integrate the companies," says Credit Suisse analyst Chris Larsen. "T-Mobile would try to convert those customers on Sprint to GSM. However, they would get much-needed spectrum from Sprint."

Citigroup analyst Michael Rollins agrees that a Deutsche Telekom acquisition of Sprint could be successful if it could grow the GSM platform and shrink the CDMA and iDEN technologies. However, the likelihood of that scenario playing out is less than if a cable multisystem operator or a private-equity company were to acquire Sprint, he believes.

"We previously described that a possible Sprint acquisition by Deutsche Telekom may have opportunities, although we did not believe [it] was prepared to make a large investment for its U.S. portfolio," said Rollins in a statement. "We believe Sprint can be an acquisition target, but the problems at Sprint still seem deep-rooted and may deter a buyer in the near-term for the assets given the risks that subscriptions and cash flow may not trough until between 2009 and 2010."

Larsen estimates that Deutsche Telekom could bid $10 or $11 a share for Sprint, while Rollins believes it could go as high as $12 a share for the company.

Rollins said that the risks of regulatory approval remain a large hurdle for current carriers because of the resulting industry concentration around the big four national carriers and the presence of at least one regional carrier in a number of markets.