All But Owning Sprint-Nextel, Apple Should Buy T-Mobile USA

Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Like all others, Apple (NASDAQ: AAPL) would have profited greatly if it had bought Sprint-Nextel (NYSE: S) last year.  For 2012, Sprint-Nextel has risen by 137.61%.  Unlike all others, however, Apple basically 'owns' Sprint-Nextel as the wireless carrier owes its rebound to the popularity of the iPhone.  As such, Apple should buy T-Mobile USA to enhance its operations.

T-Mobile USA, owned by Deutsche Telekom (NYSE: DT), is the fourth largest wireless carrier in the United States.  It is the only major one not offering the iPhone 5.  There is much about T-Mobile USA that is attractive, however, as evinced by the $39 billion bid for it last year by AT&T (NYSE: T).  The value of T-Mobile USA was also demonstrated by how hard Sprint-Nextel opposed the sale.

Unlike Sprint-Nextel, the intrinsic value of T-Mobile USA has most likely declined.  T-Mobile USA has been losing subscribers in droves.  Ironically, much of this is attributed to T-Mobile USA not offering the iPhone.  About losing more than 700,000 subscribers in the last quarter of 2011, T-Mobile USA's earnings reported stated that, ""Sequentially, the decline in branded net contract customers was driven primarily by higher branded contract deactivations as a result of the launch of the iPhone 4S by three nationwide competitors in mid-October..."

This will only get worse as the iPhone 5 has, so far, been very successful.  Should Apple buy T-Mobile USA that is certainly one major problem that will go away.  Another that will be remedied is the funding that T-Mobile USA needs to compete but has not received in sufficient amounts.

Apple has over $100 billion in cash.  There have been rumblings about AT&T and Verizon Communications (NYSE: VZ) being dissatisfied with the expenses that selling the iPhone entails.  Acquiring T-Mobile USA would allow for Apple to develop its own wire carrier to better compete.

Unlike Sprint-Nextel, T-Mobile USA is profitable.  For the second quarter, T-Mobile USA posted net income of $207 million, down from $212 million in 2011.  Overall revenue fell to $4.9 billion, a 3% drop from Q2 2011.  For the second quarter, operating income increased for T-Mobile USA, however.

While losing contract customers, T-Mobile USA has added 227,000 new prepaid customers.  T-Mobile has also added 95,000 new machine-to-machine connections.  These range from vending machines to point-of-sale terminals.  What this proves is that T-Mobile USA can attract new clients.  Imagine what would happen with financing from Apple and the iPhone on the menu!

In terms of customer service, as of 2011, T-Mobile USA ranked highest among major wireless carriers for retail store satisfaction for four consecutive years, according to a JD Power survey.  For two years it ranked highest for wireless customer care.  It is clearly the lack of the iPhone that is bleeding away many customers.

In addition to attracting new customers not wanting an iPhone, T-Mobile USA is actually making more money in some aspects.  T-Mobile’s average revenue for prepaid users increased 13.6% compared with a year ago.  Over the same period, revenue from contract subscribers rose by 14.6%.  This led to a jump in operating income of 4.8% to $1.34 billion. T-Mobile USA now has a higher income than when AT&T was trying to buy it last year.  Even with a net loss of customers, T-Mobile USA is making more money in these areas.

Buying T-Mobile USA would result in more leverage for Apple.  Both Verizon and AT&T have been increasing upgrade fees and the costs of data plans.  Owning T-Mobile USA and its contract with Sprint-Nextel would aggrandize the market presence of Apple.

Better customer service, its new unlimited data plan and the upgrade to the 4Ge-Lite and so much more that Apple would bring would more than reverse the outflow of subscribers for T-Mobile USA.  At present, T-Mobile USA has more than 30 million subscribers and a nationwide network that reaches 96% of all Americans.  Apple needs all the firepower it can muster against AT&T and Verizon.  After all, Verizon supported AT&T's bid for T-Mobile USA.

Acquiring T-Mobile USA would bring a new profit center to Apple.  There would be no anti-trust concerns or government opposition like that thwarting the AT&T bid as competition would increase from a more robust T-Mobile USA with Apple's backing.  Millions of customers would return, based on those that left due to T-Mobile's not having the iPhone.  Apple would then benefit from increasing revenues in data plans and related fees, as Verizon Communications and AT&T are now enjoying.


Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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