Sprint Reportedly Bowing Out of T-Mobile Bid (was "Sprint offer" and "Iliad" threads)

[centermedic]

I am totally for this merger because of the two reasons given above: It is extremely expensive to have/deploy/upgrade a nationwide network and the big two suck so much of the profit out of the industry that it leaves the other two scrambling for scraps. I like the fact that T-Mobile has little debt.

 

There will be some divestiture/swapping of spectrum, possibly to Dish (possibly EBS) and then hosting of Dish's fixed network. 

 

The big holdup will not be how much spectrum the new company will own but whether it will bid in the AWS-3 auction. 

 

For those of you that think that the merger will have any effect on the deployment of NV 2.0, don't fret. NV 1.0 will be substantially complete this summer and by the time this merger closes, NV 2.0 will be well on it's way. And do we really care which frequency band is providing prodigious bandwidth? All we care about is that it is prodigious and it it everywhere we need it.

 

As far as the leadership going forward, I am afraid that it will be the T-Mobile team. They have shown that they can execute a plan a lot better than Sprint's team or at least give the impression that they do execute faster. 

From an investing standpoint you should keep an eye on the debt that would be incurred if Softbank buys T-mobile. Anything near the ATT bid of 39 billion should make anybody pause.

[bigsnake49]

From an investing standpoint you should keep an eye on the debt that would be incurred if Softbank buys T-mobile. Anything near the ATT bid of 39 billion should make anybody pause.

I don't know that it will be Sprint borrowing the money or Softbank. If Softbank, they can afford it since they will be getting a lot of money from their Alibaba holdings.

 

I am more concerned with a breakup fee.

[maxsilver]

I still doesn't see how this merger benefits Sprint. In fact, it seems like it will be a huge distraction.

 

- Sprint doesn't need T-Mobile's spectrum, (and can't use most of it from a device standpoint, for many years.)

 

- Sprint won't use T-Mobile's additional cell density / towers / fiber backhaul (they'll almost certainly throw away most of those sites, similar to Nextel / Clear) 

 

- Sprint doesn't get any meaningful money from this. (T-Mobile has explosive, impressive positive growth, but at a very high cost with the ETF buyouts and device financing).

 

- Regulators already told Sprint they would be pretty aggressive in defending T-Mobile. Sprint's money is better spent building the network, then paying T-Mobile a second breakup fee.

 

It's expensive to build a nationwide network, but it's not *that* expensive to do so. (T-Mobile is covering their costs, while upgrading their entire network to LTE. Sprint would be able to do so as well, if not for the subscriber losses).

 

And if Sprint buys T-Mobile, Sprint won't get credit for their work on the network in the public eye / popular press. The story will read "Sprint's network got so bad that they had to buy T-Mobile's to fix it". It's not fair to Sprint employees, but that's almost certainly how it will look.

 

- - -

 

The only win for Sprint I see here is one that hurts all of us -- namely, that Sprints biggest competitor will no longer exist. Folks can hate on T-Mobile all we want, and a lot of it is totally justified, but having them gone won't do good things for Sprint users in the long run, in terms of pricing and policies.

[irev210]

Son is probably getting frustrated.  The longer Son waits, the more expensive T-mobile is getting.

 

Total net adds of 2.391 million and postpaid churn of 1.5% (lowest ever).  T-Mobile is absolutely positively crushing it.

 

 

I hope that DOJ and FCC stops this.  Having four carriers is nice - it really gives customers choice.  Having three choices would just be choosing AT&T or Verizon (essentially priced on parity) or Sprint/T-mobile, which will be priced just below them.

 

Of course Son wants to buy T-Mobile.  It would make it 1000x easier for sprint to compete.

[sbolen]

If Legere becomes CEO of the combined company, I will be against everything. 1) I know how much he has spoken out against Framily & 2) He's just too noisy and crazy. Outspoken people are bad for people in the end.

I read this blurb in my seeking alpha email this morning:

Sprint reportedly "plans to push forward" with a bid for T-Mobile USA (TMUS) in June or July after lining up financing from six banks. Spring (S) parent SoftBank (OTCPK:SFTBF) is still talking to T-Mobile parent Deutsche Telekom (OTCPK:DTEGF) about who would run the post-merger company, with outspoken T-Mobile chief John Legere being the top candidate. The latter company's stock jumped 9.25% in post-market trading

[centermedic]

I don't know that it will be Sprint borrowing the money or Softbank. If Softbank, they can afford it since they will be getting a lot of money from their Alibaba holdings.

 

I am more concerned with a breakup fee.

It does not matter who borrows the money. It still ends up as Softbank debt. I have to look up the figure but Softbank already has an enormous amount of debt. I would be concerned with an additional 40b in debt.

[JeremiahMcCurry]

No one in government has signaled this plan would be approved. Sprint/Bank is just going to end up giving T-Mobile some more network expansion money.

[irev210]

No one in government has signaled this plan would be approved. Sprint/Bank is just going to end up giving T-Mobile some more network expansion money.

 

Actually, if you followed the news, you would realize that this is not the case.

 

Son has essentially stated that he would not provide a big breakup fee and that a big breakup fee would lead to regulatory agencies saying no to strengthen t-mobile (a stretch).

[irev210]

The only win for Sprint I see here is one that hurts all of us -- namely, that Sprints biggest competitor will no longer exist. Folks can hate on T-Mobile all we want, and a lot of it is totally justified, but having them gone won't do good things for Sprint users in the long run, in terms of pricing and policies.

 

Bingo - Son would LOVE to get rid of Sprint's biggest competitor.

 

Son is not all for competition and low prices.  He is here to make a profit and taking out Sprint's largest competitor is the way to go about doing that.

 

T-Mobile is driving down margins, taking sprint customers, etc.  Softbank has the cash to take them out.  It's common sense from a business perspective.  From a consumer perspective, we'll just end up with higher prices and more profitable wireless carriers.

 

I have no idea how anyone on this forum could support that.

[nmbr1scoobs]

I'm trying to wait until the formal bid in June/July before I form an opinion. I want to see what Son will present with T-Mo.

[Terrell352]

If Sprint continues to lose customers because they cant roll out a network fast enough and tmobile continues to gain customers at this rate then by the end of the year tmobile will be the number 3 carrier

Son is probably getting frustrated. The longer Son waits, the more expensive T-mobile is getting.

 

Total net adds of 2.391 million and postpaid churn of 1.5% (lowest ever). T-Mobile is absolutely positively crushing it.

 

 

I hope that DOJ and FCC stops this. Having four carriers is nice - it really gives customers choice. Having three choices would just be choosing AT&T or Verizon (essentially priced on parity) or Sprint/T-mobile, which will be priced just below them.

 

Of course Son wants to buy T-Mobile. It would make it 1000x easier for sprint to compete.

[marioc21]

Bingo - Son would LOVE to get rid of Sprint's biggest competitor.

 

Son is not all for competition and low prices.  He is here to make a profit and taking out Sprint's largest competitor is the way to go about doing that.

 

T-Mobile is driving down margins, taking sprint customers, etc.  Softbank has the cash to take them out.  It's common sense from a business perspective.  From a consumer perspective, we'll just end up with higher prices and more profitable wireless carriers.

 

I have no idea how anyone on this forum could support that.

 

I don't know.  I think you make the assumption that 4 national carriers can actually survive independently in the long run.  I'm sure that's the case.  There might only be room for 3 competitive national carriers.  If there is a 4th, it will probably be reduced to no more than a glorified regional carrier. It'll be there but really not be much a factor in the market.  

[S4GRU]

Bingo - Son would LOVE to get rid of Sprint's biggest competitor.

 

Son is not all for competition and low prices. He is here to make a profit and taking out Sprint's largest competitor is the way to go about doing that.

 

T-Mobile is driving down margins, taking sprint customers, etc. Softbank has the cash to take them out. It's common sense from a business perspective. From a consumer perspective, we'll just end up with higher prices and more profitable wireless carriers.

 

I have no idea how anyone on this forum could support that.

He's said as much, if you read between the lines. He says that two smaller competitors cannot take on their two larger rivals because finances will never allow it. If we want more than two fully national providers, we will need to make a change, like allowing a merger/buyout. If we are happy with the status quo, two big and two little, then leave things the way they are.

 

I think the question that is the most profound to ask is this...which would AT&T and VZW prefer? I believe it is a resounding NO MERGER. And then you all have to ask yourself, why would the duopoly be against a merger. Because they'd be scared that they truly would have someone other then the other to compete against.

 

AT&T numbers have shown they have largely deflected the Uncarrier moves, just by simply lowering prices. Why go to inferior coverage Tmo if AT&T is the same price? Tmo and Sprint are just taking the same customers back and forth. And that's the way it will always be until someone can really start to take on the duopoly.

 

Tmo or Sprint could take on the duopoly organically. They don't have to consolidate. But it's much harder. And will take much longer. And take lots of capital. And it may take longer than most investors are willing to wait for. CCA is their best bet apart. However, VZW already is buying out a CCA member. How many have they bought the last 4 years? How many more will they be able to buy out? All of them, maybe?

 

Robert via Samsung Note 8.0 using Tapatalk Pro

[JonnygATL]

If Sprint continues to lose customers because they cant roll out a network fast enough and tmobile continues to gain customers at this rate then by the end of the year tmobile will be the number 3 carrier

Scary but very true. The numbers don't lie (though they do sometimes get a bit twisted).

[jamisonshaw125]

Ah, Robert you never fail to clear things up for me. Thank you

 

 

Sent from my iPhone 5s using Tapatalk

[centermedic]

He's said as much, if you read between the lines. He says that two smaller competitors cannot take on their two larger rivals because finances will never allow it. If we want more than two fully national providers, we will need to make a change, like allowing a merger/buyout. If we are happy with the status quo, two big and two little, then leave things the way they are.

 

I think the question that is the most profound to ask is this...which would AT&T and VZW prefer? I believe it is a resounding NO MERGER. And then you all have to ask yourself, why would the duopoly be against a merger. Because they'd be scared that they truly would have someone other then the other to compete against.

 

AT&T numbers have shown they have largely deflected the Uncarrier moves, just by simply lowering prices. Why go to inferior coverage Tmo if AT&T is the same price? Tmo and Sprint are just taking the same customers back and forth. And that's the way it will always be until someone can really start to take on the duopoly.

 

Tmo or Sprint could take on the duopoly organically. They don't have to consolidate. But it's much harder. And will take much longer. And take lots of capital. And it may take longer than most investors are willing to wait for. CCA is their best bet apart. However, VZW already is buying out a CCA member. How many have they bought the last 4 years? How many more will they be able to buy out? All of them, maybe?

 

Robert via Samsung Note 8.0 using Tapatalk Pro

I understand what you are saying, but I fear that what Son is proposing may torpedo both companies and we end up with two national carriers. Softbank has approximately 60 billion in debt after the Sprint acquisition. If we use the over inflated number that ATT value T-Mo at then Softbank would be at approximately 100 billion in debt. They currently have a net debt to equity ratio of 4.6 A debt of 100 billion would send it close to 9.0 This really bothers me. http://www.softbank.jp/en/corp/irinfo/financials/results/highlights_02/

[irev210]

I don't know.  I think you make the assumption that 4 national carriers can actually survive independently in the long run.  I'm sure that's the case.  There might only be room for 3 competitive national carriers.  If there is a 4th, it will probably be reduced to no more than a glorified regional carrier. It'll be there but really not be much a factor in the market.  

 

Really?  Considering the margins in the wireless industry, I would argue that there is plenty reason to assume that 4 national carriers can actually survive.

 

He's said as much, if you read between the lines. He says that two smaller competitors cannot take on their two larger rivals because finances will never allow it. If we want more than two fully national providers, we will need to make a change, like allowing a merger/buyout. If we are happy with the status quo, two big and two little, then leave things the way they are.

 

I think the question that is the most profound to ask is this...which would AT&T and VZW prefer? I believe it is a resounding NO MERGER. And then you all have to ask yourself, why would the duopoly be against a merger. Because they'd be scared that they truly would have someone other then the other to compete against.

 

AT&T numbers have shown they have largely deflected the Uncarrier moves, just by simply lowering prices. Why go to inferior coverage Tmo if AT&T is the same price? Tmo and Sprint are just taking the same customers back and forth. And that's the way it will always be until someone can really start to take on the duopoly.

 

Tmo or Sprint could take on the duopoly organically. They don't have to consolidate. But it's much harder. And will take much longer. And take lots of capital. And it may take longer than most investors are willing to wait for. CCA is their best bet apart. However, VZW already is buying out a CCA member. How many have they bought the last 4 years? How many more will they be able to buy out? All of them, maybe?

 

Robert via Samsung Note 8.0 using Tapatalk Pro

 

If you are trying to sell to a regulatory agency, what else are you going to say?  That you really want to buy T-Mobile so you can have higher margins and complete much more comfortably by taking out your closest competitor?  Son is trying to sell this deal to regulatory agencies - take what he says through the lens of a regulatory agency coming from a competitive businessman.  He is looking out for his shareholders.

 

As for AT&T and Verizon - they would probably support a merger.  New AWS up for grabs and a comfortable/predictable landscape for the bells to compete in.  Like I said - you would have them comfortable at their 40-50% margins while softbank/sprint would slot just below that.  The current size of the duopoly would make them stick with their current margins while keeping sprint just below them.

 

I don't think it is harder for Sprint/T-Mobile to take on the duopoly.  I think T-Mobile's current quarter of record low churn, insane adds, and 20% adjusted ebitda margins shows that you can take on the duopoly while not needing to consolidate.

 

If you are a sprint/softbank shareholder, no doubt you would want T-Mobile to merge with Sprint as the entire wireless industry in the US would become more profitable.  If you are a customer, I don't think you would see much disruption.

 

Just my humble opinion based on profit margins, size of Sprint and T-Mobile, and how much they can do to attract customers.

[TheForce627]

I just don't see it.... You can't compete with the big two if you don't compete on coverage. T-Mobile doesn't help that except for their much better site placement and density in cities. Sprint with the cca partnership looks to be the best option to compete but if vzw goes on a buying spree of these cca members then that's an issue as well. All I see is just more debt, larger subscriber base, on a network smaller than the duopoly

[utiz4321]

Really? Considering the margins in the wireless industry, I would argue that there is plenty reason to assume that 4 national carriers can actually survive.

 

 

If you are trying to sell to a regulatory agency, what else are you going to say? That you really want to buy T-Mobile so you can have higher margins and complete much more comfortably by taking out your closest competitor? Son is trying to sell this deal to regulatory agencies - take what he says through the lens of a regulatory agency coming from a competitive businessman. He is looking out for his shareholders.

 

As for AT&T and Verizon - they would probably support a merger. New AWS up for grabs and a comfortable/predictable landscape for the bells to compete in. Like I said - you would have them comfortable at their 40-50% margins while softbank/sprint would slot just below that. The current size of the duopoly would make them stick with their current margins while keeping sprint just below them.

 

I don't think it is harder for Sprint/T-Mobile to take on the duopoly. I think T-Mobile's current quarter of record low churn, insane adds, and 20% adjusted ebitda margins shows that you can take on the duopoly while not needing to consolidate.

 

If you are a sprint/softbank shareholder, no doubt you would want T-Mobile to merge with Sprint as the entire wireless industry in the US would become more profitable. If you are a customer, I don't think you would see much disruption.

 

Just my humble opinion based on profit margins, size of Sprint and T-Mobile, and how much they can do to attract customers.

Tmoble still lost money and their churn was over 2%, well over twice that of AT&T and Verizon. Further T-Mobile had to raise prices!

The thing that is winning me over is T-Mobile and Sprint need about 60000 cell towers each which is the same number as vzw and AT&T but they only have half the customers to pay for it.

[irev210]

Tmoble still lost money and their churn was over 2%, well over twice that of AT&T and Verizon. Further T-Mobile had to raise prices!

The thing that is winning me over is T-Mobile and Sprint need about 60000 cell towers each which is the same number as vzw and AT&T but they only have half the customers to pay for it.

 

 

I'll post up some numbers - this will make it more helpful.

 

What is "lost money"? 

 

First off, you are probably looking at total churn not postpaid churn.

 

For example, AT&T had postpaid churn of 1.1%, Verizon 1%, and sprint 2.2% for the last quarter of 2013.

Prepaid churn is completely different because of lower ARPU and the lower subscriber count of prepaid customers that AT&T and Verizon have.  While both have their place, compare postpaid (valuable customers) to postpaid.

 

Sprint's postpaid churn 1Q14 was 2.11% vs. T-Mobile of 1.5%.

 

Look at EBITDA margin which is a MUCH better metric to look at profitability for wireless carriers.

For AT&T we had 37.4% in 4Q13, 14.5% for sprint, 47% for VZN, and 24% for T-Mobile.

 

Sprint increased ebitda margin to 25.3% for 1Q14 and T-Mobile fell to 20.4%.

 

T-Mobile is being more aggressive with price, so margins are falling.

 

We can discuss in much more detail if you would like but I think it is important to focus on real numbers.

[utiz4321]

I'll post up some numbers - this will make it more helpful.

 

What is "lost money"?

 

First off, you are probably looking at total churn not postpaid churn.

 

For example, AT&T had postpaid churn of 1.1%, Verizon 1%, and sprint 2.2% for the last quarter of 2013.

Prepaid churn is completely different because of lower ARPU and the lower subscriber count of prepaid customers that AT&T and Verizon have. While both have their place, compare postpaid (valuable customers) to postpaid.

 

Sprint's postpaid churn 1Q14 was 2.11% vs. T-Mobile of 1.5%.

 

Look at EBITDA margin which is a MUCH better metric to look at profitability for wireless carriers.

For AT&T we had 37.4% in 4Q13, 14.5% for sprint, 47% for VZN, and 24% for T-Mobile.

 

Sprint increased ebitda margin to 25.3% for 1Q14 and T-Mobile fell to 20.4%.

 

T-Mobile is being more aggressive with price, so margins are falling.

 

We can discuss in much more detail if you would like but I think it is important to focus on real numbers.

I was wrong about the churn numbers but Sprint and tmobie lost 151 million net. And T-Mobile raised prices Which goes against the narative of four carriers lower prices. In fact T-Mobile hasn't really changed prices, they have Changed the business model (ie more away from subsity) but not really price.

[irev210]

I was wrong about the churn numbers but Sprint and tmobie lost 151 million net. And T-Mobile raised prices Which goes against the narative of four carriers lower prices. In fact T-Mobile hasn't really changed prices, they have Changed the business model (ie more away from subsity) but not really price.

 

No problem - we can chat a bit more about how I measure "profit" or "profitability"

 

I think you should focus on more relevant numbers.  When you look at net you are including depreciation and amortization (not a cash expense), one time impairment/restructuring costs, interest expenses which can be shifted, and tax implications (can be a benefit or expense).  What does NET income tell you?  Not much - nothing about how profitable the core business is, that's for sure.

 

I don't want to get into a Finance 101 class but we should all compare the carriers using the same metrics.  If you want to see how profitable they are, look at their adjusted (gets rid of one-time expenses so it is apples to apples) EBITDA margin.  How profitable is a carrier based on its current financial structure?

 

Next, let's look at pricing.  In fact, T-Mobile has lowered their prices.  This is measured by ARPU, which is an apples to apples measure of how the industry measures pricing.

 

T-Mobile's postpaid ARPU 1 year ago was $54.07 while today it is $50.01.  They've lowered prices by 7.5%!

[Conan Kudo]

The only major problem with the ARPU metric is that it doesn't count in money coming in through EIP (a term TMUS first coined, but now everyone uses). It's basically the equivalent of "below the line billing" for accounting purposes. Because the revenue required for subsidies was built into the base rate, it's fair game for ARPU. But EIP isn't, so it's factored out. Realistically, you need to have some sort of average billing per user to make up for this deficit. Verizon and AT&T have the advantage of ARPA (average revenue per account), which allows them to combine the total revenue on an account basis (including EIP) and divide it by the number of accounts. Thus, their ARPA numbers are higher. T-Mobile and Sprint can't use this metric because they don't use shared data plan schemes.

[irev210]

The only major problem with the ARPU metric is that it doesn't count in money coming in through EIP (a term TMUS first coined, but now everyone uses). It's basically the equivalent of "below the line billing" for accounting purposes. Because the revenue required for subsidies was built into the base rate, it's fair game for ARPU. But EIP isn't, so it's factored out. Realistically, you need to have some sort of average billing per user to make up for this deficit. Verizon and AT&T have the advantage of ARPA (average revenue per account), which allows them to combine the total revenue on an account basis (including EIP) and divide it by the number of accounts. Thus, their ARPA numbers are higher. T-Mobile and Sprint can't use this metric because they don't use shared data plan schemes.

 

Yes, EIP is a good scheme to get away from the "new iphone launch" problem that AT&T has had.

 

I suspect that all subsidies will eventually get moved below the line as banks step in to provide financing.

[utiz4321]

No problem - we can chat a bit more about how I measure "profit" or "profitability"

 

I think you should focus on more relevant numbers. When you look at net you are including depreciation and amortization (not a cash expense), one time impairment/restructuring costs, interest expenses which can be shifted, and tax implications (can be a benefit or expense). What does NET income tell you? Not much - nothing about how profitable the core business is, that's for sure.

 

I don't want to get into a Finance 101 class but we should all compare the carriers using the same metrics. If you want to see how profitable they are, look at their adjusted (gets rid of one-time expenses so it is apples to apples) EBITDA margin. How profitable is a carrier based on its current financial structure?

 

Next, let's look at pricing. In fact, T-Mobile has lowered their prices. This is measured by ARPU, which is an apples to apples measure of how the industry measures pricing.

 

T-Mobile's postpaid ARPU 1 year ago was $54.07 while today it is $50.01. They've lowered prices by 7.5%!

Your cherry picking here. You can't look at arpu and say they are lowering price because the new arpu doesn't include handset subsidies( a year ago a much higher portion of their customers where on older plans that included subsidies). When you add the cost of equipment that customers now have to pay that is worth over 4 dollars. Further The problem with editda is that it ignores the ongoing capital costs in a very capital intense business. This is where the merger makes sense to me. The larger companies have a huge advantage in being able to spread the fix costs over a larger sub base.