Why did Paulson boost its position in Sprint?

Market Realist

Paulson & Co's positions in 4Q 2013 (Part 8 of 8)

(Continued from Part 7)

John Paulson’s hedge fund boosted its position in Sprint Corp (S) from 2.20% in 3Q 2013 to 3.40% last quarter. The stake was initiated in 4Q 2012 and in 3Q 2013, the position was reduced.

Paulson seems to be banking on the consolidation trend in the U.S. wireless space as Sprint is seeking to buy rival T-Mobile (TMUS). A merger would create a large player that would compete against the two largest mobile operators, Verizon (VZ) and AT&T (T). However, regulatory concerns might impact the deal, as AT&T’s $39 billion deal to acquire competitor T-Mobile in 2011 was shot down by U.S. antitrust regulators. Japan’s Softbank Corp. owns a controlling stake in Sprint, while Deutsche Telekom AG owns about 67% of T-Mobile U.S.

According to an unconfirmed WSJ report, Sprint and Softbank are currently rethinking its options to buy T-Mobile from Deutsche Telekom (DTEGF) after the Justice Department and the FCC expressed concerns that the merger might not secure the required approvals. Sprint has been trying to convince the U.S. regulators that merging the No. 3 and No. 4 wireless carriers will increase competition and improve prices and options.

Sprint’s net loss was $1 billion in the fourth quarter as compared to a loss of $1.3 billion in the fourth quarter of 2012. The net loss included $1.53 billion in depreciation and write-off of assets related to its defunct Nextel business, as well as $206 million in costs related to its severance payments for recent layoffs and from getting out of lease agreements. Operating revenue grew year-over-year to more than $9.1 billion for the fourth quarter and to $35.5 billion for the full year 2013. Sprint ended the year with 53.9 million Sprint platform subscribers—its highest level ever—after adding 58,000 postpaid subscribers, 322,000 prepaid subscribers and 302,000 wholesale and affiliate subscribers in the fourth quarter. However, the number of contract customers declined to 58,000 new subscribers from 401,000 a year ago. Peers AT&T added 780,000 contract customers, while Verizon Wireless added 824,000 phone customers. T-Mobile added 869,000 contract customers in the period.

Sprint has been lagging behind its larger rivals as it is slowly upgrading its network. It is even behind No. 4 T-Mobile in its LTE deployment although Sprint expects to cover 250 million people by the middle of this year. The carrier says it will deploy its high-speed Sprint Spark service in 100 cities within the next three years.

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