Reports: Interest In U.S. Wireless Consolidation Is High, But Players And Timing Are Unknown

After reports surfaced this weekend that Deutsche Telekom (NYSE: DT) might be interested in merging its struggling U.S. wireless unit with Sprint (NYSE: S), more details are emerging that puts into question when such a deal might take place, or whether Sprint is really the best candidate.

The Financial Times reports that two of DT’s top shareholders has imposed a deadline of the middle of next year to turn round the T-Mobile USA, and if management fails to make the appropriate changes, they are prepared to force strategic options. However, a conflicting report by Reuters today suggests that DT is not planning to do anything in the immediate future and there is no pressure from shareholders to find a solution soon.

Perhaps the biggest hurdle to getting a deal done is that very few match-ups actually make financial sense. While a merger between T-Mobile USA and Sprint would make it the second-largest operator just ahead of AT&T (NYSE: T) and smaller than Verizon Wireless (NYSE: VZ), the combined company would have to operate at least three separate networks. The combined entity could see some savings and synergies as they move to 4G technologies, but that’s at least three years out. “It would be an extraordinarily hard merger to pull off. The U.S. wireless market is crying out for consolidation, but it’s not clear why Deutsche Telekom wants to be the guinea pig and suffer the pain of a hideous technology integration for the benefit of the rest of the market rather than themselves,” Bernstein Research analyst Craig Moffett told Reuters. “The technology incompatibility of their respective networks makes it a somewhat unappetizing task.”

So, if not Sprint, perhaps T-Mobile would partner up with Leap Wireless and/or MetroPCS? Already, Sprint has purchased Virgin Mobile USA (NYSE: VM), which kicked off consolidation among the carriers that offer deep discounts and prepaid services.

But again, network technologies would be a problem with both of those providers using CDMA and T-Mobile using GSM. At the minimum, we could see a merger between both Leap and MetroPCS. Least likely of all, is AT&T or Verizon Wireless acquiring anyone. The U.S. government has just started to increase its scrutiny of the wireless industry, and for a carrier of that size to get approvals seems doubtful at this stage.