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(Reuters) - Sprint Corp (S.N) has dropped its bid to acquire No. 4 U.S. carrier T-Mobile U.S. Inc TMUS.N after regulatory resistance showed no signs of softening despite months of lobbying, people familiar with the matter told Reuters.
The move is a rare setback for Sprint's Japanese parent SoftBank Corp (9984.T), whose billionaire founder Masayoshi Son had seen the acquisition as key to taking on U.S. market leaders AT&T Inc (T.N) and Verizon Communications Inc (VZ.N).
Sprint, the No. 3 U.S. carrier, and T-Mobile have not ruled out consolidation in the future but concluded that a deal is unlikely to be approved at this time, the sources said. U.S. regulators have insisted that they want to keep the number of major wireless carriers at four.
"We didn't think the opposition would be this strong," a SoftBank executive said, but added: "The environment will definitely change".
The failure to reach a deal could give added impetus to a rival bid for T-Mobile by French telecoms firm Iliad (ILD.PA). Iliad made a lower bid than Sprint but is in talks with U.S. cable and satellite companies to sweeten its offer.
In the wake of the failed talks, Sprint will appoint a new CEO - Marcelo Claure, founder of mobile phone distributor Brightstar Corp which was acquired by SoftBank last year, a separate person with knowledge of the matter said. Claure, who has won a string of awards for entrepreneurship, joined Sprint's board in January.
He will replace Dan Hesse who has been CEO of Sprint since 2007. Hesse led a rip-and-replace overhaul to modernise Sprint's network but it caused cellular sites to go black and the company to hemorrhage subscribers.
Sources declined to be identified as the matter has not been disclosed by the companies publicly. Representatives for Sprint and SoftBank declined a request for comment. T-Mobile did not immediately respond to a request for comment.
Sprint shares were down 16 percent and T-Mobile shares were down 9 percent in after-hours trading.
SoftBank's shares closed down 3.5 percent on Wednesday.
Although Sprint's earnings have improved on the back of cost reductions, without T-Mobile its path to growth is unclear and it is expected to struggle.
"If you add up Sprint's annual capital expenditure and interest payments, it cannot cover them from its annual operating cash flow. If things stay the way they are, they'll be in dire straits," said Norito Shimizu, senior researcher at InfoCom Research Inc.
SoftBank bought 80 percent of Sprint last year for some $20 billion (11.8 billion pounds), just one of many aggressive acquisitions by Son who has built SoftBank from a small software publisher into Japan's second-most valuable listed company. He has vowed to make SoftBank the world's largest Internet media company.
The SoftBank executive added that despite the setback, the company had plenty of other irons in the fire in the U.S. market, citing last month's poaching of Google Inc (GOOGL.O) Chief Business Officer Nikesh Arora to head up SoftBank Internet and Media Inc, a planned U.S. subsidiary.
Sprint had agreed to pay $40 per share under the broad terms of an agreement worked out with Deutsche Telekom AG (DTEGn.DE) T-Mobile's majority owner, following months of talks.
By contrast, Iliad has so far offered only $33 per share for a 56.6 percent stake in T-Mobile. Possible partners to help it sweeten its bid include Dish Networks (DISH.O), Cox Communications [COXC.UL] and Charter Communications (CHTR.O), sources have said.
T-Mobile has taken the industry by surprise with aggressive pricing plans and no-contract campaigns, boosting its customer numbers and posting its first net profit in a year in the second quarter.
Roger Entner, analyst at Recon Analytics in Boston, said the announcement could signal the tables may have turned on Deutsche Telekom.
"As long as there was a Sprint offer on the table, bargaining power was with Deutsche Telekom. Now the bargaining power is with Iliad," he said.
The failure of the Sprint-T-Mobile talks was first reported by the Wall Street Journal.
Additional reporting by Liana B. Baker in New York and Teppei Kasai in Tokyo; Editing by Edmund Klamann, Lisa Shumaker, Ken Wills and Edwina Gibbs