NEW YORK (CNNMoney) -- With AT&T dealing for prized asset T-Mobile, Sprint's options may be down to two: buy everything smaller than it or get bought by Verizon.

Sprint (S, Fortune 500) will be a distant third in the U.S. wireless industry if the AT&T/T-Mobile merger goes through. The carrier would control just 16% of the market, while AT&T (T, Fortune 500) and Verizon (VZ, Fortune 500) would own more than 70% of it.

"I do have concerns that it would stifle innovation and that too much power would be in the hands of two [companies]," Sprint CEO Dan Hesse said Tuesday at a panel discussion at the CTIA Wireless Conference in Orlando.

The problem for Sprint is that scale brings wireless companies a fierce competitive edge. Size gives carriers the ability to negotiate deals for the best handsets and the revenue needed to support the tremendous costs of building out and improving a network.

In other words, the U.S. wireless space is shaping up to be like the cola market: There's Verizon and AT&T as Coke (KO, Fortune 500) and Pepsi (PEP, Fortune 500). Then there's Sprint trying to make it as R.C. Cola.

Created through the 2005 merger of two rivals with separate network technologies, Sprint Nextel has been running in the red ever since. Its annual loss last year widened to $3.5 billion. In its latest annual report, Sprint warned that if it doesn't hit its turnaround goals, it could have trouble meeting its debt-repayment obligations.

The company has gained momentum in recent months by holding onto its customers and by improving its handset lineup and customer service. But some analysts said those small gains will be the equivalent of bringing a knife to a gunfight should AT&T merge with T-Mobile.

"This is a very worrisome development for Sprint," said Dan Hays, a partner with PRTM, which consults with the telecom industry. "The most attractive option is for Verizon to decide that an acquisition is now viable."

Despite network similarities (both use the CDMA standard), and Sprint's clear need for a better 4G solution than its failed Clearwire/WiMAX experiment, Verizon hasn't yet gone after Sprint. One reason is that, with a market cap of $15 billion (well, $14 billion after Monday's stock drubbing), Sprint wouldn't exactly come cheap.

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The problem for Sprint is that scale brings wireless companies a fierce competitive edge.