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How T-Mobile's Odyssey Could Still End in a Sprint Deal

Only Sprint can give the company the scale it needs to build a true rival to AT&T or Verizon.

Cliff Notes

With T-Mobile adding customers and suddenly becoming the target of a surprise buyout offer, it’s easy to think the company might not need Sprint after all.

But the truth is that few options other than a sale to rival Sprint will help T-Mobile thrive over the long term.

CEO John Legere won’t come out and say that, but he understands the market realities of being No. 3 or No. 4 in a playing field dominated by two giants.

In an interview on Thursday — before an offer from France’s Iliad bid became public — Legere drew a distinction between the types of gains that his company could make independently in the short term versus those it could achieve with the kind of scale that a Sprint deal could provide.

On its own, Legere said, T-Mobile can profitably grow and probably even raise the cash needed to bid in upcoming spectrum auctions. But AT&T and Verizon are so much bigger that only a partner or owner with deep pockets could help it topple its powerful rivals.

On the heels of a pair of quarterly financial reports this week in which Sprint continued to lose customers as T-Mobile gained, leverage has tipped in favor of Legere.

Or in his own words: “[Sprint] needs a transaction to survive,” he said, adding that he sees the day coming where his company — long the No. 4 player — passes Sprint and becomes No. 3. “We’re in a position of being strong, playing from a hand of strength.”

Even before Sprint has made a formal offer, T-Mobile’s gains are complicating the potential deal. First, T-Mobile will likely demand a higher premium than it would have months or even weeks ago.

And perhaps more threatening to the successful completion of a transaction is T-Mobile’s continued ability to snatch customers from rivals. That show of strength could make it a tougher sell to regulators that a deal with Sprint will actually preserve competition and not simply eliminate it.

Legere did suggest in the interview with Re/code that Sprint wasn’t the only possible partner. Though he did not name names, he said there are plenty of big companies that might have an interest in the U.S. wireless business, including Dish Network, Facebook and Google.

That said, a deal with any one of those companies wouldn’t give T-Mobile the kind of instant customer growth that a Sprint deal would offer.

“We are still a very low market-share player.,” Legere said.

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