Sprint-Nextel (NYSE: S) is apparently in talks with European telecom giant Deutsche Telekom about combining its US cellular division T-Mobile with the No.3 wireless provider. T-Mobile is No.4 in US cellular customers. The new company would have 83 million subscribers by most estimates, about 10 million shy of market leaders AT&T (NYSE: T) and Verizon Wireless. A combination is not likely to help either of the weaker operations much and may simply complicate the efforts of both to gain market share.

Sprint found out how difficult it is to merge two wireless platforms and brands after Sprint and Nextel merged in 2005. The new firm suffered from customer service problems, which helped AT&T and Verizon Wireless to gain market share. A tie-up with T-Mobile would be no different, particularly as each takes steps into the 4G business. Sprint has bet that its WiMax standard will succeed. T-Mobile would probably need to adopt the same technology eventually, if a combination is completed. AT&T and Verizon Wireless have built their 4G platform’s on LTE, which will be the de facto standard because of the 190 million subscribers that the two companies have in total.

Sprint needs to decide if it will maintain two brands or market T-Mobile under the Sprint brand. Some amount of  consumer confusion would be inevitable and the last thing Sprint needs is a reprise of the Nextel debacle.

Sprint also has to deal with its lack of popular products, particularly the Apple (NASDAQ: AAPL) iPhone and iPad. The HTC Evo 4G handset is the closest Sprint has to a flagship. HTC does not have a brand nearly as powerful as Apple’s. Otherwise Sprint’s major smartphones include the Research In Motion (NASDAQ: RIMM) BlackBerries which other carriers have as well.

Sprint also lacks a critical advantage that Verizon and AT&T each have. Sprint has no landline or fiber broadband to the home businesses. These help AT&T and Verizon cross-market to customers across the country.

Sprint put itself in a hole when it bought Nextel. A new M&A deal will not pull it out.

Douglas A. McIntyre

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