This is truly amusing, but it would not surprise.  Rumors have started up again that DT is talking with Sprint about some sort of combination involving DT's T-Mobile US unit.

Sprint is getting a hell of a pop here:

The problem with such a combination is that T-Mobile's network is GSM-based while Sprint's is CDMA and (for those still on legacy things from their previous combination) iDEN.

The fun is that half their userbase would have to re-equip no matter which way this goes.  That's not so good, and harkens back to the hilarity that ensued when they bought Nextel with their iDEN infrastructure.  That combination was a flat-out disaster.

T-Mobile, for its part, is bleeding customers.  Why?  They're pricing as a premium carrier like Verizon or AT&T but aren't equipped like one.  DT is simply nuts with their pricing considering the dramatically inferior network on a data-centric comparison.  Huge swaths of their data network are still GPRS (~40kbps!) since DT didn't bother going to EDGE in outlying areas as AT&T did (which would get you into the ~110-150kbps range) and as such outside of major markets their data service sucks to the point of being functionally unusable.

Well that's fine if you're half or 3/4 of everyone else's price like the MVNOs are - but they're not.  And many of the policies T-Mobile used to have (like being ok with you tethering your PC via the handset and even supplying handsets with tethering installed and supported from them - a practice that went all the way back to the Nokia 6161 "candybar" phone and continued up through the Windows Mobile 6.1-equipped HD2) have disappeared.  Now they're actively content-examining like everyone else and attempting to force data upgrades for tethering on a "for fee" basis, which means you may as well go over to Sprint and buy their EVO or similar - the money is roughly the same and the data coverage is dramatically superior, especially outside of major metro areas.

If I'm going to pay as much as AT&T or Verizon and I don't get anything better then why would I buy from T-Mobile?  Arguing "The largest 4G Network!" may be good advertising copy but as soon as you drive 10 miles out of town your so-called "4g network connection" turns into a 40kbps - or slower than an old dial-up modem - dinosaur!

I'm not kidding on that, by the way.  I travel a fair bit and I'm a T-Mobile customer.  If you have a legacy grandfathered deal they're still ok.  But if you don't they're simply not competitive.  I'd either go with Sprint or, if I didn't want a contract, Virgin Mobile with their Android handsets for $60/month "all you can eat" and a network that is actually 3g speeds in most places, and where it's not, has at least ISDN speed capacities.  T-Mobile cannot compete with this today for new subscribers, contract or no.

So from my viewpoint here the deal sucks but Sprint would get a hell of a subscriber boost and the stock will likely move big if it happens. For this reason I'm interested in a speculative play.

I like the April $5 calls at 20 cents.  If there's no transaction by expiry I'm willing to do it again for the August's, provided I can get it around that price.  On the Aprils there's no good sale on the other side to offset (the $6s are three cents) but if the Aprils expire worthless and you can do the August $5/6 bull call spread for less than a quarter that looks good too.  If a deal is announced I think you'll easily see $6 almost immediately, and it's entirely possible the stock challenges the three-year highs near $10.  Yeah, that's nuts, and there's no support for it on the fundamentals (at all), but the tie-up would put Sprint in a position to have a customer base that rivals Verizon and AT&T - which is exactly how you'll see it positioned and "sold" by the street.

This is a highly speculative play and thus is one to play "small ball" with, as it's one of those deals that if it hits is a 4 or 5:1 payout, but if it's a miss you will get nothing.  And while I think Sprint would be absolutely insane to do this transaction unless they can steal the deal from DT, one cannot ignore the possibility that DT sees the writing on the wall.  By an EBIDTA analysis DT has lost half of what they paid for Powertel and affiliates originally, and there's only so far you can go throwing good money after bad.

Were I DT I wouldn't do this deal. I'd instead cut prices and try to cannibalize the MVNOs, roll EDGE everywhere right now (that's small ball on money as it's a software change) and get more-aggressive with the 3g/4g roll. At the same time they must toss the punitive policies and explicitly and publicly go back to how it used to be with them, where their handsets supported tethering and similar uses.  Use the "soft cap" system they have now (they throttle you but not bill you if you use too much data) but increase the cap to 150% of the most-generous major competitor at the same time.  The intent would be to aggressively attack the "big core" competitors' most-lucrative customers - the business and professional who can get rid of a data connection (e.g. his "plug-in dongle" for his laptop) and device.  To do it you have to not only hit all the big markets though you have to get rid of the GPRS stuff - nobody's going to deal with that in today's world, so the commitment to be "at least" EDGE everywhere has to be made and kept on an immediate basis.  The gambit is that such an offering can be put forward profitably, and intentionally luring the most-lucrative customers from other carriers won't leave them DT an overloaded network they can't pay for and thus trash their reputation further while failing to bring in the requisite revenue.

The credit markets are reasonably-favorable to financing such a build, but the risk - if you fail - is considerable. The problem is that DT has pretended for far too long trying to be a Tier 1 player without actually being one, and their reputation - flashy advertising aside - may be too far gone to be salvaged.

Contrary to popular belief the issue is not spectrum - it's build-out and the business decision not to build EDGE network-wide.  T-Mobile just is NOT competitive with 40kbps data speeds, and once outside of major cities, even on the interstate system, that's what you get, all their advertising aside.

Disclosure: Long synthetic via CALLs pretty-much as described above.