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Mr.Nuke

S4GRU Staff
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  1. T-Mobile's earnings are being released after the closing bell today. Sprint's earnings release is tomorrow. The companies will continue seperate earnings releases this year as they are still operating "independently."
  2. Seth GoodwinSprint 4G Rollout UpdatesMonday, 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/
  3. There are certainly some interesting questions I can think of.
  4. This one will be a little more like all of the other ones just to get something up on the wall. We'll start to delve deeper technically later when we 1) have more time and 2) know more. Everything on that end has been pretty vague so far.
  5. We are working on ours (sorry for the delay).
  6. An analyst asked a follow-up question about it and Claure said it begins immediately. We don't know what the actual agreement or extent of it is though.
  7. Anything said prior to the press call today (and heck a lot of what was said on that call) is worthless at this point. We'll see what Sprint opts to do for their Q4/FY 2017 earnings this week or next week, but it would be nice if the analysts get a chance to ask Claure for more clarification on issues like this.
  8. Much like the job creation claims we'll see how this actually works (if it does it all). At the very least, things aren't going to continue as "planned." It is highly likely that even if Sprint continues with their original capex spending guidance, that what they end up doing is going to be in large part dictated by the merger i.e. any work would be on sites green-lit as surviving post merger. Because... First of all this makes sense as it ultimately saves T-Mobile a bit of roaming expenses on Sprint's behalf if the merger goes through. That said, this as essentially the break-up fee fee screams to me as an acknowledgement that Sprint's network plans this year would've been different had the company not been involved in the merger process. "We'll let you roam where you need to with us for several years" while you recover and ramp up your own network spending.
  9. At this point just wait we will have transcripts by this afternoon in all likelihood.
  10. Day 1 as in now it sounds like, and in lieu of a breakup fee the roaming deal is 4 years in the event the merger fails.
  11. What? And read the article for the math on how you get to a "$26 billion" deal.
  12. It isn't suspicious. Rather it is a pretty good sign that the reports that merger talks are fairly deep are accurate. T-Mobile historically would've reported earnings this week or early next week, Sprint next week or early the following week. The fact that DT and SoftBank's earnings are coordinated for the 9th further backs this up. The last time merger talks were reportedly deep Sprint skipped their earnings release as well*. I wouldn't read that much into this other than it is pretty clear they're talking. Whether or not they can agree to terms is the key as it was the last time. *If a merger isn't announced by the 9th and pending the respective earnings calls for DT and SoftBank; especially with this time corresponding to an end of fiscal year and Sprint's situation going forward, I'd expect an earnings call or an analyst conference call for Sprint after the 9th.
  13. Why not link the the actual report instead of a 2nd hand telling of said report? https://www.reuters.com/article/us-sprint-corp-m-a-t-mobile-us-exclusive/exclusive-t-mobile-sprint-make-progress-aim-for-deal-next-week-sources-idUSKBN1HX3G6
  14. That is a fair compromise to getting rid of erroneous data, but I'm not going to go out of my way to re-map stuff annually.
  15. What does an announcement from over a year ago about potentially bringing back off-shored call center jobs/ expanding sales postions have to do with an announcement about layoffs a year later at headquarters? I don't expect everyone here to have a working knowledge of corporate finance, but at a fundamental level Sprint is a company that has been losing money for a decade. They're also stating that they're going to ramp up Capex and are showing signs with the recent spectrum backed debt and non-secured debt offerings that this is the case. Something has to give. Continued cost cutting is absolutely essential so long as the operating side of Sprint isn't making enough money to cover the company's financial obligations (especially with the company ramping up to spend significantly more the next several years).
  16. Just for reference re: Lincoln... Sprint obtained a lease on EBS A2 that they didn't have before. This allows for a 20 MHz contiguous channel from BRS 1 to EBS A3 that Sprint had previously lacked in said market (giving the magic box the necessary high/low b41 seperation). https://wireless2.fcc.gov/UlsEntry/attachments/attachmentViewRD.jsp?applType=search&fileKey=1772442106&attachmentKey=20153479&attachmentInd=applAttach
  17. What do the relay and lte screens look like?
  18. That is what you are looking for. https://www.google.com/maps/@41.8915542,-87.6177293,3a,37.3y,217.09h,110.03t/data=!3m6!1e1!3m4!1szlTWckf2NeOG11Y-Kuah0Q!2e0!7i13312!8i6656 Or a few blocks over https://www.google.com/maps/@41.8925985,-87.6187761,3a,61.7y,30.12h,118.72t/data=!3m6!1e1!3m4!1syTkfZJXcuqxInWygbjfZUg!2e0!7i13312!8i6656
  19. While Sprint has issued debt basically to payoff debt (and they'll continue to do it as long as they aren't turning a profit, 10 years running now), I highly doubt that is the case here. They actually retired debt early last quarter. Additionally, Sprint currently has enough cash on hand to cover their debt maturities through fiscal year 2018 (3/31/18). What they're likely doing (and what they said they'd be doing on the last earnings call) is building up money for the increase in CapEx.
  20. It shouldn't be a huge surprise based on the last earnings call (Combes strongly hinted they were looking at the high-yield market, even further so when asked a question during the Q&A); but overall, I'd say it is a pretty positive development. It shows Sprint has regained access to the high-yield bond market at terms fairly commensurate to when they last participated 3 years ago almost to the date. Plus, if you expect interest rates to rise, which certainly doesn’t seem unreasonable, now is probably as good of a time as any to lock in what you can. The other slightly positive way of looking at things is that Sprint management and Softbank appear to be comfortable with the financial position of the company right now to do this. To the former, they strongly hinted they were going to do both. I don’t read anything regarding not being able to do something re: spectrum co. To the latter, there are plenty of reasons. The best of them being ideally the spectrum backed secured debt probably needs to be somewhat reserved for when it is actually needed. The solvency of the company to an extent was in question in early 2016 with some analysts estimating the company would run out of money unless something was done in the subsequent 18-24 months in large part due to $10+ billion in debt coming due in the following few years. The primary reason that Sprint was using spectrum backed debt vehicles, using 2.5 vendor financing options, selling future customer income at discount for money now, selling off phones and leasing them back, etc. is that the company was in such a giant liquidity pinch. This was compounded by the fact that the company effectively lost access to the high-yield debt market at the same time. In Early 2016, Sprint’s debt that had been issued at par was trading at about 75 cents to the dollar with coupons in the 6-8% range was yielding 12-13.5% (implying that would be Sprint’s future cost of borrowing on any new high-yield debt). Robbiati came on at roughly the same time and said the following at one of his first investor conferences, “Would you really want to tap into the high-yield market at 10%, 12%?” No. It doesn’t make any sense.” So, they went the handset leasing, spectrum backed security route, which again isn’t without it’s downfalls. When it happened in 2016 a Bloomberg article likened it to “borrowing against the tires to make car payments.” An equity analyst in a WSJ article said, “it shows what kind of bind Sprint is in, when you have to collateralize the plates and silverware.” Neither are exactly wrong. The spectrum backed debt has two advantages for Sprint. 1) The interest rate is significantly lower than the junk bond market and 2) it is a way for Softbank to get around some of their debt covenants and end-run-around inject money into Sprint. Both of those advantages come with some costs though. The spectrum is a finite asset and they already sold 14% of it off. Secured debt is cheaper for Sprint, because it is less risky for the lenders due to the fact their bonds are secured by the asset (in this case the spectrum). If Sprint were to hypothetically default or go bankrupt they in all likelihood lose the spectrum. The other bigger factor is that as illustrated in the paragraph directly above this one, there was a time less than two years ago when Sprint really had no other realistic borrowing options other than doing this. In a lot of ways, you’d want to preserve the capacity to do this again if you absolutely needed to in the future i.e. a “rainy day” when the market conditions aren’t favorable or the company isn’t in a financial position to obtain funding through more traditional sources. The junk-bond market isn’t going to last forever if Sprint cannot show an ability to generate actual free cash flows on a consistent basis. Furthermore, the more they collateralize assets for securitized debt the greater the potential they cut themselves off from the traditional unsecured debt markets due to covenants, seniority placement, and concerns about Sprint’s capacity to payoff non-secured debt in the event of default. It literally could be the difference between getting 80-90% of your money back versus pennies on the dollar. So the tl;dr of this is even if you can obtain debt cheaper by say offering 2.5 spectrum as collateral that isn't necessarily the better option. The whole reason Sprint was offering 2.5 secured debt or handset leasing vehicles was they didn't have access to traditional debt markets. It is certainly creative, cheaper borrowing that will have a place at S going forward. That said, tapping the high-yield market while Sprint can at relatively decent rates makes a heck of a lot of sense. They'll tap Spectrum Co again soon based on the earnings call.
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