Analyst: A Sprint/MetroPCS merger more likely than one with T-Mobile

September 12, 2012 | By Phil Goldstein

A deal between Sprint Nextel (NYSE:S) and flat-rate player MetroPCS (NYSE:PCS) makes much more sense than one between Sprint and No. 4 carrier T-Mobile USA, according to a Goldman Sachs analyst.

In a research report, Goldman Sachs analyst Jason Armstrong noted that Sprint's rising stock price has increased speculation that the carrier will engage in some kind of M&A activity. He said a deal for a smaller, regional carrier would be much easier to pull off than a deal with T-Mobile, which he called "aspirational" rather than likely. He wrote Cricket provider Leap Wireless (NASDAQ:LEAP) could also be a potential Sprint target.

A Sprint merger with MetroPCS or Leap would be less technically complicated than one with T-Mobile, since T-Mobile's network is based on GSM and HSPA+ technology and MetroPCS and Leap are CDMA carriers like Sprint. Still, the smaller carriers' AWS spectrum would need to be rationalized with Sprint's network. A deal for MetroPCS was reportedly close to being finalized earlier this year but was killed by Sprint's board; Sprint has never confirmed or discussed any of the reports about the MetroPCS deal.

"A smaller prepaid-centric deal may be the more logical route for now if Sprint determines to pursue M&A," Armstrong wrote. Sprint declined to comment, according to Bloomberg. 

Sprint's stock has climbed 114 percent in 2012 and was trading at slightly over $5 per share this morning. The carrier has produced stronger subscriber results in recent quarters.

Sprint has left the door open for consolidation. "We're certainly working very hard to compete with AT&T and Verizon," Sprint CEO Dan Hesse said in August. "The industry has to deal with the issue of the duopoly. The gap between the No. 2 and No. 3 players is enormous. We always have been and always will be open to further consolidation, as long as it isn't AT&T or Verizon Wireless."

In a recent interview with FierceWireless, MetroPCS COO Tom Keys said that the time is ripe for some kind of industry consolidation. 

"It would probably be a better time to do it now than any other time you can think of in the recent past," he said. "Now, how, who, why, where and what--that's going to be up for debate. But at the end of the day, I think what you've seen with the AT&T/T-Mobile deal is that there's at least two companies that thought that consolidation was a good thing. So if you take that as a precursor, yes--[but] under the desire that we always a provide a good experience for the consumer and the consumer doesn't get harmed by having artificially higher rates because you have one less competitor."