Google (GOOG) Deal Could Have Negative Credit Implications for Sprint (S), T-Mobile (TMUS) and DISH (DISH) - Citi

Commenting on news yesterday from "The Information" that Google (NASDAQ: GOOG) (NASDAQ: GOOGL) may enter into MVNO agreements on Sprint (NYSE: S) and T-Mobile (NASDAQ: TMUS) networks, credit analysts at Citi said if true this could have negative credit impacts on Sprint, T-Mobile and DISH Networks (NASDAQ: DISH). Given this, they are not so certain a deal would happen, at least near-term.

The analyst said Google want to pursue a MVNO strategy as it would help the company gain more customer information as it faces challenges monetizing mobile.

On the other side, the firm said it is difficult to understand why Sprint or T-Mobile would want to purse a deal with Google. "Google's entrance would seem to compete directly for wireless customers," David Phipps notes. "MVNO relationships provide materially lower returns to network operators. Therefore, we believe it would only make sense from a network operator perspective to allow an MVNO operator only if the operator could not attract customers. T-Mobile has clearly gained customers, so that is not an issue. Sprint announced its December customer net adds had improved to near break-even, so that they may wish to see their current strategy play out (for a while)."

On the credit, the analyst notes that while MVNOs have historically been unsuccessful, assuming Google is very successful, that would likely imply a lower value customer mix to both Sprint & T-Mobile from the Google MVNO, and more price competition for wireless customers. "Google could make money from its traditional advertising and break-even or lose money on wireless," he comments. "This could lead to lower ARPU for customers Sprint & T-Mobile to retain which would be credit negative."

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