T-Mobile/MetroPCS Merger

[iansltx]

That imo is the ONLY reason why Sprint should even consider looking at Leap...and even then I'm still not sure that it would be a good idea.

 

CricKet is not using its spectrum efficiently at this point, and has elected not to pay Sprint for roaming access fees last I checked. They may be able to be acquired on the cheap, and customers can be very easily migrated to Sprint. Shut down CricKet's own network, add the spectrum to Sprint, then swap T-Mobile for even more PCS spectrum and you've got a good business case for the acquisition.

 

After all, where are customers going to go if they want to defect from Leap after a Sprint acquisition?

[bigsnake49]

It could be that, by shuffling spectrum around, T-Mobile can isolate MetroPCS CDMA on 1900MHz, rather than just shutting it down ASAP. I think this might take away from T-Mo HSPA spectrum in Las Vegas, but otherwise it's doable within MetroPCS's own holdings (in Dallas they have a 5x5 LTE carrier, which means that all of their voice/non-LTE data is on PCS). And for AWS-only MetroPCS markets, T-Mobile could still just shut down CDMA entirely and push customers over to Sprint CDMA.

 

The result: T-Mobile gets between 5x5 and 10x10 of AWS spectrum to add to their network (10x10 in NYC, adjacent to their current holdings). The company will be able to deploy 20x20 LTE and 5x5 HSPA in a number of markets that they weren't able to before (NYC being a huge one), with the added bonus of more PCS to deploy H+ on.

 

Can't wait for AJ to get a spectrum chart up for AWS and PCS...because I'm too lazy to do it myself

 

Yeah, but I don't think Sprint will give them MVNO status. They are going to charge them roaming fees.

[Rawvega]

Other than AWS and 700mhz sprint could use the rest of that spectrum. They do not need to sell off the Cellular spectrum.

 

Yeah the AWS would definitely need to go, but I'm not so sure about the 700MHz. Who would buy it? Verizon? Nope, they're selling all of their 700MHz except for their upper C block. T-Mobile? Very doubtful and even if they did want it, that's probably a good reason why Sprint shouldn't sell it to them. AT&T? Well they'd possibly/probably be interested in any lower B & C licenses, but definitely the lower A licenses. It'd probably be better just to keep them and try to add to it...and hope that pesky channel 51 situation gets taken care of asap.

[irev210]

I have said it before, and I will say it again. Do not pay to acquire non contract subs. They are not worth any premium. And their cheap, non contract plans are an albatross around the neck of any major carrier that acquires them. If you keep the cheap, non contract plans, you piss off your core contract subs, who then want the same cheap rates. Or if you discontinue the cheap, non contract plans, you piss off the subs you just acquired. The FCC may not even allow that in any merger consent agreement; if it does, the cheap, non contract subs you just paid billions to acquire may then leave for MVNOs.

 

AJ

 

I think Sprint has done an absolutely fantastic job with its prepaid arm. From an operational perspective, MetroPCS would slot in nicely with its other prepaid segments (boost, virgin, assurance).

 

Prepaid or postpaid, it's how you operate the service and Sprint definitely has best-in-class prepaid metrics. The fact that the handsets are already compatible make it very easy, from an operational perspective, to integrate. AWS could have been sold off, PCS either added or sold, and you just get the incremental revenue.

 

If the "loyal" nextel postpaid subscribers are any indicator, it doesn't matter prepaid or postpaid - if it's not a well run operation, you are going to get churn.

 

For the overall market though, doesn't it seem like Leap is a better fit for Sprint? T-Mobile needs the customers to stay competitive. For a healthy big four, Leap to Sprint, MetroPCS to T-Mobile made the most sense.

[Rawvega]

CricKet is not using its spectrum efficiently at this point, and has elected not to pay Sprint for roaming access fees last I checked. They may be able to be acquired on the cheap, and customers can be very easily migrated to Sprint. Shut down CricKet's own network, add the spectrum to Sprint, then swap T-Mobile for even more PCS spectrum and you've got a good business case for the acquisition.

 

After all, where are customers going to go if they want to defect from Leap after a Sprint acquisition?

 

Yeah Cricket not paying their bill almost does seem like a way of trying to force Sprint's hand, sorta like when Clearwire threatened to default on a payment and got Sprint to step. Not the exact same scenario, of course, but similar in a way.

 

I guess it likely depends on what the actual dollar amount of "acquired on the cheap" turns out to be.

[ChadBroChillz]

I hate to sound like a broken record, but I still feel USCC is the bell of the ball with Metro out. I also feel Metro has set the price for regional carriers. Sprint goes after USCC, and they will increase their lead on Tmobile, while increasing their coverage closer to that of ATT/Verizon instead of Tmobile. I feel Tmobile will have some trouble migrating these customers, which will lead them to leave for Sprint or another carrier. They have the same number of customers as Leap. The increase in rural coverage could get Verizon/ATT customers in those areas to switch to sprint.

[bigsnake49]

So what company is going to take on the job of acquiring US Cellular? Verizon lines up the best spectrum wise, but would probably get rejected by the FCC. Also they were told to dump 700 a and b and this would have them acquiring more.

 

Sprint would have to sell off AWS and Cellular(850), and 700 just to get some PCS

AT&T makes sense, would the FCC allow it?

T-Mobile is not CDMA, but that doesn't seem to stop them. It would be their first cellular 850 spectrum to maintain, however, and 700 block spectrum. In a lot of ways it would make them a powerhouse, but only in certain geographic areas.

 

US Cellular might just be too hard to integrate and that's probably the reason they are still independent.

 

The best think for Sprint if they buy USCC is to assign Sprint's own 800MHz (SMR spectrum) and form a rural corporation. USCC caters to the rural customer and have made money doing it. They can be a wholly owned subsidiary of Sprint. Meanwhile, their more urban customers can be absorbed into Sprint. Their 700MHz and AWS holdings can be sold off or traded. They do have 6M contract customers.

[bigsnake49]

Yeah Cricket not paying their bill almost does seem like a way of trying to force Sprint's hand, sorta like when Clearwire threatened to default on a payment and got Sprint to step. Not the exact same scenario, of course, but similar in a way.

 

I guess it likely depends on what the actual dollar amount of "acquired on the cheap" turns out to be.

 

It would be market cap + debt which in Leap's case is $4B.

[iansltx]

Yeah Cricket not paying their bill almost does seem like a way of trying to force Sprint's hand, sorta like when Clearwire threatened to default on a payment and got Sprint to step. Not the exact same scenario, of course, but similar in a way.

 

I guess it likely depends on what the actual dollar amount of "acquired on the cheap" turns out to be.

 

Well, the MetroPCS merger just killed Leap's stock. It's down 15% from yesterday and will probably stay that way. Sprint could probably acquire them for $600 million , less than CricKet paid for its AWS licenses six years ago. If you place some nominal value on CricKet customers (say, $50 apiece), the deal looks even better

 

EDIT: Forgot to factor in debt. Still isn't too raw of a deal.

[supert0nes]

I agree with all the replies about 850. I was doing a summary for all carriers and brushed over how easily Sprint could add 850. Not sure if they would need new antennas on the towers, but essentially a moot point.

 

iansltx - Thanks for the great writeup where you separate LTE bandwidth from legacy. Tons of insight.

 

I also am really intrigued by the idea of USCC as a short to medium term subsidiary of Sprint. This should keep more contracts around and makes sense to me. Then eventually replace USCC towers with Sprint towers with 850 support.

[jefbal99]

I agree with all the replies about 850. I was doing a summary for all carriers and brushed over how easily Sprint could add 850. Not sure if they would need new antennas on the towers, but essentially a moot point.

 

iansltx - Thanks for the great writeup where you separate LTE bandwidth from legacy. Tons of insight.

 

I also am really intrigued by the idea of USCC as a short to medium term subsidiary of Sprint. This should keep more contracts around and makes sense to me. Then eventually replace USCC towers with Sprint towers with 850 support.

 

Alltel's 850 would have worked so well with Sprint, guess that is why Verizon paid so much to keep it from merging with Sprint

[centermedic]

I hate to sound like a broken record, but I still feel USCC is the bell of the ball with Metro out. I also feel Metro has set the price for regional carriers. Sprint goes after USCC, and they will increase their lead on Tmobile, while increasing their coverage closer to that of ATT/Verizon instead of Tmobile. I feel Tmobile will have some trouble migrating these customers, which will lead them to leave for Sprint or another carrier. They have the same number of customers as Leap. The increase in rural coverage could get Verizon/ATT customers in those areas to switch to sprint.

I would go so far as to say that since Big Red gobbled up Alltell, USCC has been the bell of the ball.

[cdiao]

So what company is going to take on the job of acquiring US Cellular? Verizon lines up the best spectrum wise, but would probably get rejected by the FCC. Also they were told to dump 700 a and b and this would have them acquiring more.

 

Sprint would have to sell off AWS and Cellular(850), and 700 just to get some PCS

AT&T makes sense, would the FCC allow it?

T-Mobile is not CDMA, but that doesn't seem to stop them. It would be their first cellular 850 spectrum to maintain, however, and 700 block spectrum. In a lot of ways it would make them a powerhouse, but only in certain geographic areas.

 

US Cellular might just be too hard to integrate and that's probably the reason they are still independent.

 

Hard for me to imagine that the Carlson family, who controls both TDS and USM, through super-voting shares, would ever sell USM,....until it's too late, like American Paging, which was another TDS split off. That's why USM trades cheap (and TDS that owns 73% of USM, even cheaper), because the street concludes that there is never a take-out opportunity.

[xcharles718]

Hard for me to imagine that the Carlson family, who controls both TDS and USM, through super-voting shares, would ever sell USM,....until it's too late, like American Paging, which was another TDS split off. That's why USM trades cheap (and TDS that owns 73% of USM, even cheaper), because the street concludes that there is never a take-out opportunity.

Not saying that Sprint shouldn't at least give it a shot.

How much ground does USCC Cellular licenses cover anyway

[cdiao]

Yeah Cricket not paying their bill almost does seem like a way of trying to force Sprint's hand, sorta like when Clearwire threatened to default on a payment and got Sprint to step. Not the exact same scenario, of course, but similar in a way.

 

I guess it likely depends on what the actual dollar amount of "acquired on the cheap" turns out to be.

 

that is soooo funny. like the bank robber in Dog Day Afternoon (or was it Blazing Saddles) who turns the gun at his own head and proclaims "dare me to shoot". Leap is not "not paying their bills" -- it's actually trying to weasle out of the annual minimum commitments it made to Sprint but paying current amounts that it has used. ever wonder what happens when Sprint adds the network message to Cricket customers when they get blocked: "Sorry you cannot access the Sprint Now Network at this time. Please call your network carrier, or if you would like, please call Virgin Mobile or Boost Mobile to immediately reinstate service." I doubt that Sprint has the balls to go all the way, but you get the idea. Leap has no leverage in this equation.

 

BTIG analysts just estimated that the MetroPCS deal was valued at $11/shr with the "hope" for future synergies, and that at the same 5x EBITDA valuation for Leap, would not be sufficient to cover Leap's debt. Leap has $3.3B of debt, plus $1.7B of tower obligations and $500MM market cap (after its 20% decline today). At the same valuation that Verizon paid for SpectrumCo (69c per mghz-pop), Leap's 3B mhz-pops of spectrum would not cover its debt, let alone the substantial tower obligations (not even counting the $900MM of purchase commitments to Apple and $600MM of MVNO obligations to Sprint). So when you say "cheap", it's not clear that at zero for the equity, that would be cheap enough. Maybe that's reason why it dropped 20% today when people realized that Leap kind of stuck in the corner, and in fact, the "growth synergy" discussed in the T-MobileUSA/MetroPCS merger conference call, was teh plan for Newco to propagate the MetroPCS brand and distribution model, using the T-Mobile GSM/HSPA/LTE network to "white spaces" where Metro currently doesn't operate. Guess who gets a "bulls eye" painted on their forehead in that scenario.

[ChadBroChillz]

 

Here is the combined coverage of T-Metro. Looks basically the same. To me, this was about spectrum and customers( who could potentially leave for another prepaid provider or carrier). It helps them in urban areas they already cover, but I do not see them expanding their coverage to compete with the Big Two.

[Boosted20V]

 

 

Here is the combined coverage of T-Metro. Looks basically the same. To me, this was about spectrum and customers( who could potentially leave for another prepaid provider or carrier). It helps them in urban areas they already cover, but I do not see them expanding their coverage to compete with the Big Two.

 

Without sub-Ghz spectrum, it would be cost prohibitive to even try.

[cdiao]

Not saying that Sprint shouldn't at least give it a shot.

How much ground does USCC Cellular licenses cover anyway

but why, except for Chicago, USM is in no other top 30 market. yep, that's right ZERO. so it largely has cellular frequencies in markets where spectrum isn't scarce (relatively speaking). look at this link but scroll down and click "US Cellular Licensed Markets"

 

http://www.uscellula...-data-maps.html

 

Except as a distraction, US Cellular offers nothing to move the dial for Sprint, and perhaps it is relatively less crappy than Leap because at least USM has some post-paid subs. But again, the Carlsons are simply not going to sell -- there's massive tax leakage that will result because the of two level corporate ownership structure. Right now the corporate structure is a "poison pill" that limits any transaction. If you see TDS spin-off USM to its shareholders, then that may signal their readiness to consider some strategic options, but even after that they have to wait 12-24 months after completion of spin-off BEFORE initiating any discussions otherwise the IRS will hold out its hand for 40% of the gain.

 

Any of these deals to contemplate acquiring the dwarfs are a distraction and could impair Sprint's ability to pursue the transaction that ultimately makes sense which is to merge with the new T-Mobile Newco. Metro isn't "gone" -- it is simply being warehoused in this Newco entity for an eventual T-Mobile combination with Sprint that will create true strategic scale with significant synergies that will become more realizable. Most of the others (at least USM and LEAP) are noise and a distraction from Sprint execuitng on Network Vision with little to be gained, and alot to potentially risk. Sprint should strengthen itself during 2013/2014 and then see if T-Mobile tripped up with the Metro integration -- and frankly, it would be better if in fact T-Mobile assimilated Metro smoothly to lower the risk of a subsequent t-mob/Sprint combination. by that time, VoLTE should be well seasoned which will allow even easier cross platform network integration.

[supert0nes]

That's what it's all about going forward...Getting as much spectrum capacity in as many urban areas as possible. T-Mobile could use a little slice of the of the sub 1hz pie, but it's not their primary goal right now. I do see them expanding coverage at a slow rate, though.

[ChadBroChillz]

I honestly do not believe a Sprint/Tmobile merger is ever going to happen. the DOJ was pretty strict on wanting 4 Major carriers. Also Tmobile is going forward with LTE on AWS/HSPA+ on PCS, which could make the merger of the two very messy.

 

I cannot comment on USCC shareholders and what they would think, but from a sprint perspective, it is about towers and coverage. Sprint is not really hurting spectrum wise, when you consider that they own almost 50% of Clearwire and could easily swallow them up for cheap. Only way to really chomp at ATT and Verizon is to close the gap coverage wise. Most of ATT's coverage is Edge, but they still have 100+million customers. People see their coverage map and go gaga over it. With USCC, Sprint would be second in LTE coverage.

[lynyrd65]

but why, except for Chicago, USM is in no other top 30 market. yep, that's right ZERO. so it largely has cellular frequencies in markets where spectrum isn't scarce (relatively speaking). look at this link but scroll down and click "US Cellular Licensed Markets"

 

http://www.uscellula...-data-maps.html

 

Except as a distraction, US Cellular offers nothing to move the dial for Sprint, and perhaps it is relatively less crappy than Leap because at least USM has some post-paid subs. But again, the Carlsons are simply not going to sell -- there's massive tax leakage that will result because the of two level corporate ownership structure. Right now the corporate structure is a "poison pill" that limits any transaction. If you see TDS spin-off USM to its shareholders, then that may signal their readiness to consider some strategic options, but even after that they have to wait 12-24 months after completion of spin-off BEFORE initiating any discussions otherwise the IRS will hold out its hand for 40% of the gain.

 

Any of these deals to contemplate acquiring the dwarfs are a distraction and could impair Sprint's ability to pursue the transaction that ultimately makes sense which is to merge with the new T-Mobile Newco. Metro isn't "gone" -- it is simply being warehoused in this Newco entity for an eventual T-Mobile combination with Sprint that will create true strategic scale with significant synergies that will become more realizable. Most of the others (at least USM and LEAP) are noise and a distraction from Sprint execuitng on Network Vision with little to be gained, and alot to potentially risk. Sprint should strengthen itself during 2013/2014 and then see if T-Mobile tripped up with the Metro integration -- and frankly, it would be better if in fact T-Mobile assimilated Metro smoothly to lower the risk of a subsequent t-mob/Sprint combination. by that time, VoLTE should be well seasoned which will allow even easier cross platform network integration.

 

They cover oklahoma pretty well.

 

sent from my 3VO from another EVO

 

 

[Fifth313ment]

I really can't believe Sprint passed on MetroPCS?! Dang Sprint board! Hesse knew to buy Metro months ago! Sprint uses the exact same technology on different frequency's! And in some areas I think the frequency's are the same like South Florida?! It would have given Sprint an advantage in their LTE footprint much faster. T-Mobile is crazy IMHO.

[iansltx]

FWIW my weekly chat with a TMo guys indicates that T-Mobile has taken the corporate tack of hating Sprint's guts now. Apparently they either can't compete with AT&T and Verizon, or they don't want to focus on that competition since AT&T just gave them a nice breakup fee and a good bit of spectrum, and Verizon also did a spectrum swap with them. So that leaves Sprint.

 

As a result, TMo will probably end up running MetroPCS CDMA for another couple years, even if that CDMA is using up AWS spectrum that could be otherwise used for LTE. Of course T-Mobile will be dropping CDMA customers incentives to switch to HSPA/LTE devices, but they'll have to be quite a bit better than TMo's normal offerings, since every single MetroPCS customer has had T-Mobile as an option and have chosen to go with Metro.

 

Naturally, "TMo guy" is excited for the marger, mentioning beating out Sprint in subscriber numbers in relatively short order. Me? Well, this could end up being another Sprint-Nextel if T-Mobile can't move MetroPCS customers off of CDMA quickly enough. But hey, at least T-Mobile has a solid transition plan for MetroPCS customers right out of the gate, something that Sprint has only recently gotten with regard to Nextel.

 

The real question here is how much LTE Sprint can get in place by March 2013 or so, because that's when it sounds like TMo will be spinning up LTE-A. The MetroPCS merger will probably slow T-Mobile down a bit, but Sprint basically has five months to build a head of steam on its own LTE deployment before Magenta starts running attack ads.

[iansltx]

This is a telling slide from TMo's presentation as to how long it'll take to get MetroPCS spectrum integrated and 20x20 LTE up:

 

They're planning on keeping MetroPCS AWS CDMA online until mid-2014, at which point Sprint will have had NV complete in Dallas for a year, maybe more, if they step things up in the least. At this point Sprint will probably have three 5x5 LTE carriers online (one in SMR), while TMo will have 10x10 on its own network and 5x5 on MetroPCS's.

 

In 2H2014, T-Mobile will have a single 20x20 LTE FD channel, plus DC-HSPA+ in both PCS and AWS. If Sprint gets aggressive with CDMA refarming (i.e. no more than three CDMA carriers in PCS, plus one in SMR) it can probably hit four 5x5 LTE carriers at that point, or three 5x5 and one 10x10. But by this point Clearwire should be able to deploy TD-LTE carriers at a few weeks' notice, bringing Sprint's capacity up to par with T-Mobile's (or maybe above it) without too much effort.

 

In 2H2015, T-Mobile will have rebalanced HSPA+ to three carriers on 1900MHz and one on AWS, maintaining the same capacity as they do now (a little more than a single 10x10 LTE channel can provide, in best-case conditions for H+). They'll have 20x20 + 5x5 of LTE in AWS, since they won't want to force 20x20 LTE devices onto H+ with a 25x25-only channel. By this point, I predict that Sprint will have PCS H, allowing 10x10 LTE in G+H, plus another 10x10 carrier in A-F, plus another 5x5 carrier in SMR (plus CDMA in PCS and SMR). So LTE bandwidths will be the same, unless there's Nx20MHz TD-LTE in a given area. In that case, Sprint will have more capacity with, if T_Mobile is "all that", a similar subscriber base on the tech.

 

This is just for one market, and this makes a few assumptions about what Sprint will be able to do spectrum-wise (the largest being the purchase of the PCS H block). But if Sprint can get NV rolling at a reasonable pace, including Clearwire congestion abatement LTE cells, they don't have anything to worry about, and they don't have to go around subsidizing phones to get people off of an incompatible legacy network technology to refarm spectrum for LTE.

[bigsnake49]

Let's face it. T-Mobile just became a much more formidable competitor at least from a spectrum point of view. If they execute properly they can inflict some damage to Sprint. Does Sprint need to respond by buying Leap and or USCC? No, not right away. I would definitely wait for the stock to rebound before doing any of that. But Sprint needs to execute on all aspects of NV and try and poach as many Metro and T-Mobile customers as they can. They need to start pressing the FCC to do something with PCS H and or partner with Dish. I know they want to keep Clearwire at arms length to cry spectrum poor at the FCC but if they do get get PCS H they need to eventually absorb it. I would like for them to explain their long term strategic vision other than execute on Network Vision.