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TheStreet Open House

Sprint, Softbank Deal a Consumer Win

Updated to include analyst comments throughout

NEW YORK ( TheStreet) -- A year ago AT&T (T - Get Report) was preparing an antitrust defense for its proposed takeover of T-Mobile USA. Now, after regulators blocked the deal, AT&T is likely bracing to protect its position in the U.S. wireless industry after a string of October merger activity that has T-Mobile partnering with MetroPCS (PCS) and Japanese telecom Softbank investing billions in new capital for a controlling stake in Sprint (S), the industry's third player.

Sunday's announcement of a $8 billion equity capital infusion into Sprint at $5.25 a share by Softbank -- and a tender offer for 70% of company's existing shares at $7.30 -- revitalizes the company's finances. It also energizes Sprint's competitiveness as an alternative national carrier to industry stalwarts AT&T and Verizon (VZ - Get Report).

Sprint's takeover and the planned merger of MetroPCS and T-Mobile earlier in October are likely to add financial and network strength to the industry's number three and four players, both of which undercut AT&T and Verizon on pricing and unlimited smartphone data plans.

At this time last year, industry watchers were bracing for a telecom sector 'duopoly' between AT&T and Verizon, as virtually every other carrier struggled to stay afloat in the highly capital intensive business of building national networks to handle smartphone data loads.

In the wake of Sprint and MetroPCS's M&A, anticompetitive talk is all but eviscerated and the prospect that unlimited data plans can challenge top tier players is far more credible.

With new financial support, Overland Park, Kan-based Sprint has billions more to complete its plan to build a 4G national wireless network, called Network Vision. Once Network Vision is finished, Sprint, which is a distant third in the U.S. wireless market to the 30%-plus market shares held by AT&T and Verizon, expects its unlimited Apple (AAPL - Get Report) iPhone data plans will help pull cell phone customers from larger carriers.

To start 2012, speculation on Sprint centered less on whether subscribers would join and more on handicapping the company's eventual bankruptcy, as it plowed billions into a network revamp and a contract to carry the iPhone.

Succeeding on Network Vision became all the more crucial for Sprint in the wake of MetroPCS's merger with T-Mobile because it faced a new challenge to a fleeting industry position.

In that tie-up, T-Mobile is poised to add millions of wireless users and a cashflow positive business to its national 4G network, putting the carrier on track to gain on its position as a low cost, unlimited data alternative. Meanwhile, the merged business would be in closer running for Sprint's third spot in the wireless market.

Now, after Sprint finally courted a deep-pocketed partner, the U.S. wireless industry looks poised for a renaissance, with cost-competitive and unlimited data carriers in a position to challenge industry leaders.

" Combining with a larger partner, one which carries a low level of leverage will provide Sprint with capital that the company needs to better compete with its larger rivals -- AT&T and Verizon," writes Thomas Seitz, an analyst at Jefferies, in a note released on Monday.

Already, Sprint is on track to go from worst to first as a stock performer in the fast-moving sector, as readily available debt financing had some analysts back tracking from bankruptcy speculation.

After October's telecom sector reshuffle, both Sprint and T-Mobile are in an even better position to invest in their 4G networks as an onslaught of data burdens existing capacity. The prospect of better coverage is likely to make both carriers a stronger alternative to AT&T and Verizon, who've been gaining market share in the past 12 months.

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