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Blog Entries posted by Mr.Nuke

  1. Mr.Nuke
    Seth Goodwin
    Sprint 4G Rollout Updates
    Monday, April 30, 2018 - 5:00 PM PDT
    After three previous attempts during the past four years, something many thought may never happen actually did. On Sunday April 29, T-Mobile announced they were effectively acquiring Sprint in an all stock deal, combining the third and fourth largest carriers in the U.S. wireless market. Pending regulatory approval, the merger is targeted for closing in the first half of 2019.
    The Deal
    The deal using an exchange ratio of 0.10256 Sprint shares for each T-Mobile share valued Sprint at approximately $26.5 billion (plus the assumption of Sprint’s $30+ billion in debt) or $6.62 per share using T-Mobile’s Friday closing price of $64.52. The combined company “New T-Mobile” will be owned 41.7% by Deutsche Telekom, T-Mobile's parent company. 27.4% of the company will be owned by Sprint's parent company SoftBank, with the remaining 30.9% owned by the general public and institutional investors.
    According to terms of the deal announced by both companies in a joint press release, the combined T-Mobile will retain two headquarters in Bellevue, Washington and Overland Park, Kansas. Current T-Mobile CEO John Legere will retain that role at the new company. T-Mobile’s Mike Sievert will serve as President and COO. No Sprint executives were announced to the management team at this time. Deutsche Telekom's Timotheus Höttges will serve as chairman of the company's board of directors, and DT will have 9 seats on the board compared to SoftBank's 4. Sprint CEO Marcelo Claure, and SoftBank Chairman and CEO Masayoshi Son will occupy two of SoftBank’s seats.
    As opposed to the famous T-Mobile/AT&T attempted tie up several years ago, this deal does not include a breakup fee should the merger fail to pass regulatory approval. Rather, Sprint has independently signed a roaming agreement with T-Mobile for four years that will continue regardless of the outcome of the merger. On the analyst call for the merger announcement Marcelo Claure said this would take effect immediately. As of the time this article was published, specific details pertaining to the roaming agreement and any actual known roaming connections have yet to materialize.
    The Plan
    Sprint and T-Mobile will continue operating separately until the conclusion of the merger, something that in and of itself raises multiple questions about this coming year. Hopefully we'll gain some more insights with Sprint's upcoming FY 2017/4th quarter earnings call.  Assuming approval, the companies announced that they intend on spending up to $40 billion in the first three years on capital expenditures and consolidating operations into a single entity. According to the press release, this represents almost 50% more than what Sprint and T-Mobile combined had spent over the past three years.
    At the time of closing, the companies estimate that Sprint and T-Mobile will have approximately 110,000 macro cell towers. Of these, around 35,000 will be decommissioned due to co-location or other redundancies. 10,000 new sites will be added leaving New T-Mobile with approximately 85,000 macro sites. Within the first three years of a combined company it is also estimated that the carrier will have over 50,000 small cells independent of magic boxes. The two carriers currently have around 10,000 combined.
    The stated plan is to “use T-Mobile as the anchor network” and use selected Sprint “keep” sites to add coverage and density. At a minimum, Sprint’s BRS/EBS 2.5 GHz spectrum will be added to T-Mobile’s sites and T-Mobile’s “full spectrum portfolio” will be deployed on Sprint’s “keep” sites. At face value, this would point toward mainly decommissioning Sprint sites as part of the 35,000-macro site reduction. In actuality we'll see what they do. For example all things equal, if two sites are co-located the greater synergies are in eliminating the tower rack with less favorable lease terms or worse rack location.
    VoLTE and Two-dot-Five
    The conference call noted while the goal is to migrate Sprint's CDMA customers to VoLTE as soon as possible, with 20 million Sprint customers having T-Mobile compatible handsets on day one. The intention is to have the total migration to T-Mobile completed over a three-year period without “degrading experience on Sprint’s network.” This suggests at a minimum keeping Sprint’s 1x800 voice service active during the transition as well as a deliberate coordinated process for overall decommissioning of macro sites.
    The other thing to watch going forward in this area is that T-Mobile makes no mention in their investor presentation toward utilizing anything other than Sprint’s 2.5 spectrum on their sites. A Sprint T-Mobile merger would create a spectrum behemoth with holdings ranging from T-Mobile’s low band 600 MHz for building penetration and rural coverage all the way through Sprint’s 2.5 GHz for capacity and speed. On Sunday, executives announced they have no intention of divesting any spectrum. However, questions remain on issues like what does a company that already possesses 600 MHz and 700 MHz LTE spectrum do with 800 MHz? How do T-Mobile and Sprint independently spend CapEx this year without diminishing merger synergies? We at S4GRU plan on potentially analyzing a combined company’s significant aggregate spectrum situation in a separate article at a later date.
    According to the investor information provided, the combined company is estimated to have run rate cost synergies in excess of $6 billion annually or on a net present value basis in excess of $43 billion. $26 billion NPV or $4 billion annually of these annual savings would be derived from network consolidation and CapEx synergies. Additional savings could come from consolidation of operations including store closing and eliminating corporate redundancies. From Sprint’s perspective these savings would be significant. The carrier has not turned a profit in the past 10 years. However, with these savings (even a portion of these savings) the carrier hypothetically would have been profitable all 10 years.
    Regulatory Hurdles
    This merger is not a done deal by any means. It faces regulatory scrutiny from the Department of Justice (DOJ) and the Federal Communications Commission (FCC). Under the administration of former President Barack Obama, AT&T and T-Mobile attempted to merge only to be shot down by the government. Sprint and T-Mobile were reportedly told not to even try four years ago.
    The prior administration's thinking had constantly been that by allowing any combination of the big 4 U.S. wireless carriers to merge into three, consolidation would negatively impact the average consumer due to lower competition in the market. On the conference call Marcelo Claure noted that regulatory approval is “the elephant in the room.” Claure and Legere are expected to embark on a tour of Washington D.C. to try and gain favor for the merger later this week.
    Much has changed in Washington since Sprint and T-Mobile’s last attempt at a tie-up, but whether or not a merger is anywhere close to a guarantee to pass remains in limbo. President Donald Trump has positioned himself as a pro-business President, meeting with Masa Son shortly after his election. And while Trump’s FCC chairman Ajit Pai has made comments signaling he may be more open to market consolidation than his predecessors; President Trump’s DOJ is simultaneously attempting to block AT&T’s acquisition of Time Warner. Claure and Legere noted that they had talked to Pai, but had yet to talk to anyone at the DOJ prior to announcing the merger.
    The Sell
    With nothing guaranteed, selling this merger to the government and the public is going to be the key factor on whether or not it ultimately gets approved. Sprint and T-Mobile executives wasted no time in starting on Sunday launching the pro merger site allfor5g.com. Legere and Claure continued touting the merger in a series of interviews and television appearances Sunday night and Monday morning. Based on early results, the argument for the merger is fairly crafted towards its intended audience.
    The crux of T-Mobile and Sprint’s contention is that 5G is the future, and the future is costly. Both companies maintain a 3rd stronger carrier is better than 4 carriers in a market, two of which are at a capital disadvantage. Claure noted that, “It’s a very simple rule of business---both companies need each other.” Sprint has 2.5 GHz spectrum that will be optimal for 5G but lacks the financial resources to deploy its own. A new T-Mobile benefits from the 2.5 GHz spectrum, a larger combined customer base, financial synergies, and greater economies of scale to effectively deploy 5G. Legere noted their goal to eventually be able to provide 450 Mbit/s speeds consistently everywhere.
    The 5G argument is significant for a couple of reasons. The first is the current administration has made 5G a quasi-national security issue. The merger of Qualcomm and Broadcom was blocked partially on the grounds of China taking the lead in 5G, and it was widely reported at one point that the Trump administration was considering nationalizing 5G out of security concerns with China. The goal here is that if you let New T-Mobile happen they contend that they will be in a position to deliver 5G rapidly, creating a sense of urgency that a deal needs to be approved sooner than later. If you don’t let them combine they aren’t in the same position to make that happen. They also contended that 5G would allow for the innovators of the future, a not so thinly veiled overall economic development message.
    The other major 5G argument centers on rural expansion. For a long-time wireless rural cell service and rural broadband have been an important political and economic development issue. Historically rural service has lagged as the infrastructure cost to deliver service far exceeds any revenue operators can hope to recoup. Legere and Claure have immediately been pushing the notion that a merger would allow the combined carrier to bring rural broadband across the nation (as well as creating jobs in rural areas during the network deployment).
    Lastly, their final argument centers around job creation. Typically, one of the reasons companies merge is that you can save money by eliminating duplicate positions within two separate organizations. Legere on Sunday claimed that this merger would create “thousands of American jobs” with 200,000 people working either directly for or on behalf of a combined entity. This likely faces more regulatory scrutiny than some of the other pro-merger arguments, as again typically mergers result in overall contraction. Furthermore, Sprint on its own announced several hundred layoffs within the past few months.
    Why now?
    In the near term, the FCC at some point soon is going to impose a quiet period forbidding anyone that is participating in this fall’s spectrum auction (an auction Sprint and T-Mobile are seeking a waiver for to jointly coordinate bidding strategies) from discussing mergers. Additionally, the longer the wait  is, it is likely some of the merger synergies would be eliminated. Sprint towers that are redundant to T-Mobile are not to Sprint itself. If Sprint's executive team was to be believed, Sprint was poised to spend $5 to 6 billion on Capex each of the next three years. Undoubtedly some of that, a potentially significant portion, would've been on towers T-Mobile has no interest in retaining. Slightly longer term, if there was ever a presidential administration to try this under it is this one. Much like this merger's outcome President Trump's re-election is far from a certainty. If a Democratic administration were to come back to Washington D.C. odds of any merger approval diminish significantly.
    Longer term yet, Sprint hasn’t turned a profit in 10 years. Marcelo Claure has done a more than admirable job at steering the ship during his four-year tenure: cutting costs, coming up with creative cost-effective network deployment strategies, etc. However, at some point access to traditional borrowing markets may have been cutoff due to Sprint's inability to generate a profit or even consistent free cash flows. It didn’t appear imminent given their two-time borrowing this year, but the company has over $27 billion in debt due over the next 6 years. It is pretty easy to envision a scenario where bond investors said times up. Beyond that, the simple burden of debt may have become so overwhelming that even if it didn't threaten the going concern of the company, it negatively impacted capital expenditures, something we've seen recently.
    Long-term is actually the story of the past 5+ years. Sprint has incredible spectrum assets, but it needed someone more financially able and willing to deploy them. SoftBank through either inability to act due to debt covenants with Japanese banks lending it money or through deliberate choice—in hindsight was never the savior it seemed. On paper, this merger should seemingly create a financially healthy company that finally is able to leverage Sprint's vast spectrum assets. However, as in the past, time will tell...
    Source: 5gforall- https://allfor5g.com/
  2. Mr.Nuke
    by Seth Goodwin
    Sprint 4G Rollout Updates
    Thursday, September 11, 2014 - 11:20 AM MDT
    Sprint CEO Marcelo Claure has only been on the job for 3-1/2 weeks, but dramatic changes have already been made. Claure took part in Goldman Sachs 23rd Annual Communacopia Conference this morning in New York City. During the course of an approximately 35 minute onstage interview, Claure’s strategy for Sprint going forward was publicized for the first time.
    Claure started by noting the advice he received as a first time CEO of a publicly traded company was “don’t make any changes for the first 100 days.” He continued “I just couldn't help myself. On day 4 we changed everything we do from the time we go to market.” In his first meeting with Sprint’s vice presidents in Overland Park, Claure asked a simple question. Why would anyone buy a Sprint phone?
    The question itself was somewhat rhetorical. As Claure noted to the audience “really there wasn't really any compelling value proposition [at Sprint]." He noted that Sprint was more expensive than some of their competitors while still “coming out of a pretty traumatic network experience.” As to Framily, Claure discussed that even he himself had a hard time understanding how the plan worked, and was less than thrilled that “We were marketing with a hamster talking to people."
    The Way Forward
    Insight into Claure’s strategy can be traced back to his time at Brightstar. Over a 15 year period, Marcelo transformed a company from selling cellphones out of the trunk of his car in Miami, to a full scale cellular logistics corporation with over $10 billion in revenue in 2013. This entrepreneurial spirit and underdog mentality is what he is seeking to replicate at Sprint.
    In the wake of complicated plans and the success of family share plans at Verizon and AT&T, Claure identified this as Sprint’s first target. Within his first four days on the job, Sprint’s post-paid plan offerings were drastically overhauled. He emphasized Sprint’s commitment to match or beat AT&T and Verizon on price as well as surpassing them by doubling the data offered on comparable competitor’s plans. By the end of Week 1, a competitive individual plan was also released.
    By essentially concentrating plan offerings to two simple to understand plans, Claure sees the ability to market and sell these plans to consumers being easier going forward. He told store employees forget about the rule book “just go out there and be an entrepreneur… It is incredible when you empower your employees and allow them to be entrepreneurs the type of things that start to happen.”
    Claure is aware of the importance of the network. He specifically noted that he monitors network performance daily. Even with that, he is optimistic about where he's taking Sprint into the future. “The network is our product…We provide connectivity and the network needs to be good in order for customers to come.” He also was gracious towards what former CEO Dan Hesse had already accomplished on the network side before leaving. “He made a pretty bold move,” Claure said. “We basically went and did a whole rip and replace of our network.”
    Marcelo noted that most of the network hardware replacement is done. Something the S4GRU sponsor site statistics bear out. Without providing details, Claure underscored something we have been hearing out of Sprint for the past several months...that the deployment of LTE Bands 25 and 26 are being accelerated with 255 million POP's now covered by Sprint LTE.
    As we have discussed on this site numerous times, Spectrum is ultimately one of Sprint’s key differentiators. “We have over 160MHz in the 2.5 band. Our majority shareholders entire secret sauce in Japan was based on their 2.5 network.” Marcelo said 60 million POP's are currently covered by Band 41 LTE. These are former Clearwire WiMax sites that have been converted to Sprint’s Spark LTE. One of the more interesting aspects of this morning’s event was the change in Sprint’s 8T8R Band 41 deployment strategy.
    Marcelo elaborated, “We are going to move to a smarter model in terms of how we deploy our equipment” going forward. He discussed that when he arrived, Sprint’s plan was simply to deploy new Band 41 8T8R equipment across their over 30,000 sites. Which is essentially all their existing full build Network Vision sites. The problem with this strategy according to Claure is that this “takes us too long to be good anywhere.” The new strategy has 2.5 LTE (Band 41) deployments being concentrated in areas where the existing network is overburdened.
    In the second wave of the Band 41 8T8R deployment attack, Sprint will be “going strong after a few cities...focusing on a few critical markets and deploying an experience that hasn't been seen yet in the U.S.”
    Shifting the focus to areas that need the extra capacity first is strategically important. If implemented properly, getting Band 41 LTE sites deployed across all markets where they are absolutely needed for extra capacity will help make the network more usable for end users. “There is no need for us to plaster the nation with 2.5, because it is going to take too long,” Claure said. “Rather we’d like to get some wins early on.”
    The Near-Term Plan
    To Claure, ultimately price and the network is Sprint’s winning value proposition. He noted in the wireless industry, you can either compete on price as T-Mobile has been aggressively doing as of late, or you can compete on the quality of your network as Verizon or AT&T does. That left Sprint in a precarious position, “we were the most expensive and our network is a work in progress.” Claure added, “You are going to see us now be the value driver… And potentially in the market for a really strong advertisement network.” Claure concluded, “If you can have price and the really strong network; you have a winning value proposition."
    To compete on value in the near-term, expect Sprint to aggressively counteract competitor’s moves. Claure gave the example of T-Mobile announcing a guaranteed best price on a device buyback or trade-in. Later that afternoon Sprint countered, offering to do better than T-Mobile. Sprint was in part able to make this play due synergies with Claure’s former company Brightstar, now fully owned by Softbank.
    Brightstar is the largest player in the phone trade-in market in the world. Claure noted synergies between Sprint and the over 1,000 companies Softbank owns or does business with are a competitive advantage. He noted that the value proposition is Sprint’s optimal strategy at this point and concluded by saying Sprint must be the ultimate disruptor in the industry.
    You can say what you want about Sprint's past. But the future is changing. It's squarely in Marcelo's hands. And he's gaining momentum.
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