Reports: Sprint gives up on T-Mobile merger; CEO Dan Hesse out

Sprint(s s) is dropping its pursuit of T-Mobile(s tmus) as the acquisition’s chances of passing regulatory muster fade, according to a breaking news item from the Wall Street Journal. And the bungled deal may have cost CEO Dan Hesse his job; Bloomberg is reporting that Sprint will announce a new CEO as soon as tomorrow.

Re/code is reporting that the interim CEO will be Brightstar founder and CEO Marcelo Claure. He joined Sprint’s board in January after Sprint’s corporate parent SoftBank bought a controlling stake in Brightstar last year. Brightstar handles the phone distribution and logistics for the major U.S. carriers.

Sprint never officially made a bid for its smaller rival, so there is technically nothing to withdraw. But for the last six months Sprint chairman and SoftBank CEO Masayoshi Son has made it plain T-Mobile was in his sights and tried to convince both regulators and the public the creation of a third mobile mega-carrier was a good idea.

Per usual, no official statement came from Sprint. Instead unnamed sources told the Journal and Bloomberg that Sprint was abandoning the merger because the regulatory challenges are too steep to overcome. Neither Bloomberg, nor the Journal had any more details, but both reported that Sprint would be making an official announcement tomorrow.

The Sprint-T-Mobile merger was always a bad idea. While pitched as a way for Sprint to achieve scale so it could press its attack on AT&T(s t) and Verizon(s vz), a merger of that magnitude would have mired the combined company in an integration nightmare. Not only are both carriers huge corporations, but they run fundamentally different network technologies.

Last decade, Sprint bought Nextel, another carrier with a different culture and network technology, and it’s been reporting quarterly losses and shedding customers pretty much ever since.

That didn’t stop Son from pursuing T-Mobile with a passion. He made every sort of outrageous promise such as his claim that Sprint-T-Mobile wouldn’t just reinvigorate mobile competition but home broadband competition as well. Regulators, however, didn’t look very fondly on the deal. In an interview with Gigaom last year, FCC Chairman Tom Wheeler said he wanted to preserve the current level of of wireless competition in the U.S.

So what’s next for Sprint, assuming the reports of the deal’s demise are accurate? It will have to tackle the market alone or look for smaller carriers to buy. The carrier has loads of spectrum and a plan to create one of the most advanced and highest-capacity LTE networks in the world, but as its become bogged down in behind-the-scenes negotiations with T-Mobile, Sprint has dragged its feet on deploying that network.

Meanwhile, T-Mobile has other suitors. Last week, French ISP Iliad revealed a $15 billion bid for half of T-Mobile’s shares. Though news reports state that T-Mobile is rebuffing that initial offer, the Iliad deal has one thing going for it: It’s sure to get regulator approval.

This post was updated several times Tuesday afternoon as more information became available.