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We Would Have Preferred Sprint Merge With CenturyLink Instead Of SoftBank

We were actually disappointed that Sprint Nextel (S) agreed to a deal with SoftBank (SFTBK. PK, SFTBY.PK) in which Softbank would acquire 70% of Sprint. We were wondering if Sprint’s management did this deal in the wake of the T-Mobile USA/MetroPCS (PCS) tie-up. In our September 7th reporton Sprint, we demonstrated that Sprint represented the best value to wireless customers and the best value for investors. We felt that Sprint’s steady progress in building out its 4G-LTE Network would enable it to catch up with AT&T (T) and Verizon (VZ), especially because Sprint now has Apple’s (AAPL) wildly popular, cutting-edge iOS devices consisting of the iPhone smartphone and the iPad tablet computer. If Sprint had to merge with another company, instead of merging with SoftBank in 2013-2014, we would have preferred the company merge with CenturyLink in 2015 after it finishes its wireless reseller agreement with Verizon Wireless. Even though CenturyLink was not currently interested in Sprint and was digesting its Savvis and Qwest acquisitions, we felt a deal in 2015 or afterward would have made sense particularly because it would have reunited Sprint’s wireless operations with Sprint’s rural incumbent local exchange operations (Embarq, which was acquired by CenturyLink in 2009).

A Sprint/CenturyLink deal would have made sense because both companies are the third largest carriers in each firm’s respective segment. CenturyLink is the third largest wireline carrier by revenues and market cap and the only company other than the AT&T/Verizon duopoly to own one of the seven Baby Bells that were spun-off from the old American Telephone and Telegraph Company. CenturyLink transformed itself from a small, rural local exchange carrier in Louisiana into the third largest wireline carrier by revenues and market cap with its acquisition of Embarq, Qwest (U.S. West) and Savvis from 2009 to 2011. Unlike the AT&T/Verizon duopoly, CenturyLink is a pure-play wireline carrier, though it has a wireless communications reseller deal with Verizon Wireless. Still, we think that eventually, CenturyLink will get tired of seeing its wireline access line customer count continuing to decline quarter-by-quarter and seeing its wireline customers cut the cord in favor of Verizon Wireless, even if CenturyLink is the sales agent for Verizon Wireless. AT&T/Verizon are seeing greater wireline access declines than CenturyLink however those companies each have a wireless subsidiary that is generating growth and offsetting declines at the wireless operations. In comparison, CenturyLink does not have a growing wireless operation of its own and has to settle for reselling Verizon Wireless’ products and services.

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