Sprint T-Mobile Deal Falls Through - Now What?Sprint T-Mobile Deal Falls Through - Now What?

Sprint seems to have the most to lose from this outcome, though winning T-Mobile might have been an even worse fate.

In a Tuesday afternoon board meeting, Sprint decided it would drop its plans to acquire T-Mobile. Despite an all-out public relations campaign by Masayoshi Son, CEO of Sprint's parent company SoftBank, the deal had faced stiff opposition from regulators, and the company apparently came to the realization that it was fighting a losing battle. In an even more surprising move, the board replaced Sprint's long time CEO Dan Hesse with billionaire entrepreneur Marcelo Claure.

While the acquisition was in the works, Sprint had been shedding customers while undertaking a multi-billion dollar network overhaul called Network Vision. The Wall Street Journal reports that Sprint has lost money every year since 2007. In the meantime, T-Mobile has added more than 4 million post-paid customers over the last five quarters under the aggressive marketing tactics of CEO John Legere.

In the wake of AT&T's thwarted effort to acquire T-Mobile, the FCC was apparently wedded to the idea that four was the right number of nationwide wireless carriers. Mr. Son had tried to make the case that Sprint needed the additional scale to compete effectively against AT&T and Verizon, but clearly the FCC wasn't convinced. The agency signaled its opposition last week when it said it would propose rules that would prevent Sprint and T-Mobile from bidding jointly in the upcoming 600 MHz spectrum auction.

The prospect of a Sprint/T-Mobile merger had grown more tentative in the past few weeks as Iliad, the fourth-largest wireless provider in France, had offered $15 billion in cash for a 56.6 % share in T-Mobile. Iliad's offer would value T-Mobile at $33 per share versus Sprint's offer of around $40 per share. Iliad announced today that it would continue its pursuit of T-Mobile.

Dan Hesse's replacement, Marcelo Claure, is the founder and CEO of privately held Brightstar, a distributor and service provider to the wireless industry with roots in the Latin American market; its reach has now extended worldwide. In October 2013, SoftBank invested $1.26 billion for 57% of Brightstar, and will now acquire the remainder of the company.

Mr. Claure has served on Sprint's board since the SoftBank investment last year, and must now look at the prospect of relocating from Miami Beach to Overland Park, Kansas. That discomfort should be partially offset by a $500,000 signing bonus and an annual base salary of $1.5 million per year with a potential first-year performance bonus of 250% of his salary.

Sprint seems to have the most to lose from this outcome, though winning T-Mobile might have been an even worse fate. The number three carrier has been buffeted with bad news, while T-Mobile is on a decided uptick. The company reported 1.5 million net customer additions in the most recent quarter while Sprint lost 2 million. T-Mobile has just passed the 50 million customer mark, and Sprint is sitting at around 53.6 million. AT&T and Verizon come in at 107.9 million and 100.1 million respectively. In after-hours trading, Sprint's shares tumbled 15 % while shares in T-Mobile fell about 9 %.

When the potential acquisition was first announced, I had given better than 50:50 odds the deal would be approved, but also feared that Sprint would be way better off not having to go through another bruising combination while it was still smarting from the disastrous Nextel acquisition. Now with the T-Mobile deal off the table, Sprint is going to have to knuckle down and start rebuilding its base the old fashioned way. Fortunately it has a revamped network, new HD voice service and is starting to rollout its tri-band Spark phones, so hopefully it can start getting itself back on track.

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