Sprint (S) - Get Report may be putting T-Mobile U.S. (TMUS) - Get Report in the friend zone for the next month as it weighs its options for a possible wireless deal with Comcast (CMCSA) - Get Report and Charter Communications (CHTR) - Get Report , but T-Mobile doesn't need Sprint as much as Sprint needs help from anyone, including T-Mobile.
Shares of Sprint were surging 5.6% to $8.45 in early morning trading on Tuesday on news that it will be meeting with the two largest U.S. cable companies, Comcast and Charter, through late July about allowing them to either resell its wireless services or to jointly acquire Sprint, according to the Wall Street Journal, citing sources familiar with the matter. The second option is much less likely, according to the Journal.
While this puts the lid for now on a possible merger between Sprint and T-Mobile, those talks could reopen, sources said. T-Mobile's stock is trading down by 2.19% to $61.78 as a deal becomes less likely.
But T-Mobile's fundamentals are so good right now that it can brush off this sudden cold shoulder from Sprint, according to Recon Analytics founder Roger Entner. "T-Mobile isn't in a rush because it's doing exceptionally well on its own," Entner said. "On the other hand, Sprint's situation is much more challenging."
For the latest quarter, T-Mobile reported profits of 80 cents per share, up 46% year-over-year and well ahead of analysts' expectations. Meanwhile, Sprint lost 7 cents per share for its latest quarter and missed expectations. T-Mobile added 798,000 post-paid phones for the quarter, handily beating Sprint's 42,000 adds.
In other words, while it would be nice for T-Mobile to acquire Sprint, it's not essential for the company's future, Entner said. Even if Sprint pulls off a deal with Charter and Comcast, it most likely won't be able to replace T-Mobile as the third largest of the four U.S. carriers, with Verizon (VZ) - Get Report at number one and AT&T (T) - Get Report at number two. T-Mobile's fundamentals are solid enough that Sprint will have to get very aggressive about gaining new customers in order to compete with it, Entner explained.
While this potential wireless deal won't solve all of Sprint's problems, investors are sending its stock up today because it shows that the struggling U.S. carrier has another option besides teaming up with T-Mobile, Wells Fargo Securities analyst Jennifer Fritzsche wrote in a note on Tuesday. Sprint is an interesting stock right now because it has a number of potential catalysts, including M&A potential, she said.
Sprint may have added another few suitors to its list, but investors should still proceed with caution, according to Entner. Wireless carriers and cable providers have tried to team up before, but the moves have never had a happy ending, and the current environment is even worse for cable players now, he said. "Overall there's a little too much excitement," he said. "What has changed to make this different?"
While details are still light at this time, the reported talks with Sprint show that Comcast and Charter are holding true to their agreement in May to explore "operational efficiencies" in wireless together. As part of the partnership, the two companies agreed to not make a deal in the wireless space for a year unless the other company agreed to it. Comcast's stock was trading down slightly to $39.29 in mid-morning trading on Tuesday.