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Sprint Prepping for T-Mobile Acquisition, Stock Rallies

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The telecom sector which sawquite a few deals throughout the year,has closed out the last full week of the year on the same note. Sprint Corp. which is owned by SoftBank of Japan is reportedly preparing for a bid on T-Mobile US in a deal that is being valued at around $20 billion. The offer, which according to reports could come as early as the spring of 2014, would be welcomed by T-Mobile’s parent company Deutsche Telekom AG, which has already shown interest in unloading its US wireless assets.

The deal if approved by the Department of Justice would make SoftBank the second largest telecom service provider in the world in terms of wireless revenues, after China Mobile (CHL). SoftBank Chief Executive Masayoshi Son however faces huge hurdles in getting the deal approved by US regulators who in the past have indicated a preference for an industry with four major carriers. A prior attempt by AT&T Inc. (T) has already been rejected by the antitrust regulators on the back of concerns regarding consumer choice.

Deutsche Telekom has reportedly indicated its preference for a cash deal instead of a stock swap. Son,after talks with Deutsche Telekom’s leadership met with banks to assure financing for the latest megadeal in telecom. As part of this deal, SoftBank would acquire Deutsche Telekom’s 67% stake in T-Mobile in an all cash deal and merge it with his US operations from Sprint.

Both Sprint and T-Mobile, the nation’s 3rd and 4th largest wireless providers respectively, have shown interest in a merger that would allow the merged entity to compete more effectively with the two industry giants in Verizon Communications Inc. (VZ) and AT&T. The deal would create a company with close to 100 million subscribers, making it a serious challenger for AT&T and Verizon, both of which have over 100 million.

While talks continue between the two parties, Dish Network Corp. (DISH) waits on the sidelines. Dish has been aggressive in its attempts to break into the US wireless market but the company has been thwarted in its efforts on a prior bid to buy Sprint. The company’s CEO Charlie Ergenhas also shown interest in acquiring T-Mobile.

Industry players and analysts agree that the current model sets up the two smaller providers to fail in the face of extreme competition in a saturated market.

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