The surprising deal widens the gap between Sprint and its two larger rivals, and would place it last among the national wireless carriers. It also puts Sprint in an awkward position--it too was in talks to merge its operations with T-Mobile, with AT&T essentially snatching up Sprint's best means to make up ground.

"This will certainly make Sprint's life more difficult," said Roger Entner, a consultant with Recon Analytics.

Sprint shares, which have gained 19% this year through Friday's close, tumbled 13% to $4.39 Monday morning in premarket trading.

Sprint may need to turn to an acquirer of its own. Cable provider Comcast Corp. (CMCSK, CMCSA), whose market cap is more than three times the size of Sprint, could be a potential suitor. Cable companies are seen needing to expand the mobile services they offer, just as wireless providers, such as AT&T and Verizon, have ramped up their video offerings in recent years.

Comcast, which already is in the process of digesting NBC Universal, wasn't immediately available for comment.

Cable companies, after past failures, have largely strayed from offering their own cell phone services. Comcast and Time Warner Cable Inc. (TWC) are among a group that has backed Clearwire Corp. (CLWR). Also, Cox Communications Inc. has built its own cellular network a few years ago and started a wireless service, which has yielded mixed results.

Analysts have downplayed speculation that Verizon Communications Inc. (VZ) could swallow Sprint in response to AT&T's big move. Keith Smithen, an analyst at Macquarie Equities Research, said Verizon Wireless, which is jointly owned by Verizon Communications and Vodafone Group PLC (VOD), is likely more focused on improving relations with Vodafone and "has no interest in Sprint currently."

Verizon spokespeople declined to comment.

Conversely, Sprint, which has a market capitalization of about $15.1 billion, could begin scooping up smaller prepaid companies such as MetroPCS Communications Inc. (PCS) or Leap Wireless International Inc. (LEAP), or rural cell phone providers like U.S. Cellular Corp. (USM).

MetroPCS, Leap and U.S. Cellular weren't immediately available for comment.

Sprint declined to comment on any forthcoming deals of its own, but it criticized the potential market concentration resulting from the combination of AT&T and T-Mobile.

"The (Department of Justice) and Federal Communications Commission must decide if this transaction is in the best interest of consumers and the U.S. economy overall, and determine if innovation and robust competition would be impacted adversely by this dramatic change in the structure of the industry," a Sprint spokeswoman said.

The company notes that AT&T and Verizon Wireless would control 80% of the U.S. market for contract customers, and that the industry is "dominated overwhelmingly."

AT&T would have a combined customer base of 130 million. Sprint, in comparison, ended 2010 with roughly 50 million subscribers.

The deal comes as Sprint began to make headway in its turnaround effort. Last month, the company reported it added contract customers for the first time in three years.

Even as the company has stemmed subscriber losses, it still lacks the size to compete for hot devices like Apple Inc.'s iPhone, which both AT&T Inc. and Verizon Wireless carry. Plus, Sprint continues to report losses--nearly $3.5 billion in 2010--because of balance sheet issues and its focus on the lower-end of the market, which is less profitable.

Sprint's smaller relative size may force it to be more aggressive on pricing. T-Mobile, in a bid to win back customers, spent the last year cutting prices and positioning itself as a more consumer-friendly company.

"I would expect that they will stay niche," said Ken Dulaney, an analyst at Gartner. "Sprint may take over that T-Mobile role."

While Sprint has been a leader in driving cheaper plans--including flat-rate, unlimited data plans--the company recently raised the rate of its smartphone data plans by $10 a month.

It also pushes together Sprint and Clearwire, with both sides incentivized to work out their differences on wholesale pricing. While Sprint was looking to merge with T-Mobile, Clearwire had sought to sell some of its excess spectrum to T-Mobile to raise cash. Both potential deals are off the table with AT&T in the mix.

By: DocMemory
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