The Sprint/T-Mobile engagement announcement arrived at my doorstep Sunday afternoon sending my otherwise bucolic sabbath into a frenzy. While I’m happy for the couple, I wish they had picked a better time. Frankly, in spite of their huge dowries, I’m worried they may never make it to the alter…the Justice of the Peace may never grant them the license, having turned down others with the same urge to cohabitate. I have seen several disparaging remarks about that likelihood ranging from “dead on arrival” to, at best, “50/50.” And what will it mean for their good friends, the Towercos? I’m worried they might make a scene at the wedding when it gets to the part about “if anyone has an objection to why these two should not be joined…”
We’ve collected reactions from around the industry before you decide what to wear to the ceremony.
The Towercos
American Tower:
“Sprint and T-Mobile US each accounted for approximately 8 percent of American Tower’s consolidated property revenues. For the quarter ended December 31, 2017, on sites where both companies had separate leases for antenna space, the revenue generated from Sprint represented approximately 4 percent of American Tower’s consolidated property revenues and the revenue generated from T-Mobile US represented approximately 3 percent of American Tower’s consolidated property revenues. The average remaining non-cancellable current lease term on these sites with Sprint and T-Mobile US is approximately three to four years.”
Crown Castle:
“For the quarter ended March 31, 2018, T-Mobile and Sprint represented approximately 19 percent and 14 percent, respectively, of Crown Castle’s consolidated site rental revenues. Further, Crown Castle derived approximately 6 percent of its consolidated site rental revenues from each of T-Mobile and Sprint on towers where both carriers currently reside, inclusive of approximately 1 percent impact from previously disclosed expected non-renewals from the anticipated decommissioning of portions of T-Mobile’s MetroPCS and Sprint’s Clearwire networks. In addition, there is an average of approximately five years and seven years of current term remaining on all lease agreements with T-Mobile and Sprint, respectively.”
SBA:
A spokesperson said they will discuss it all this afternoon at their Q1 earnings conference at 5 p.m ET. To listen in click here.
The Market Analysts
Nick Del Deo of MoffettNathanson told Inside Towers they don’t find the “exposure” stats from the towercos very informative. “It’s not same tower overlaps that matter, but same market overlaps, given how they’re integrating the networks,” Del Deo said. “T-Mobile is the surviving network, Sprint is the legacy network, and they transfer spectrum and subscribers to the T-Mobile network until it’s done and then shut down most of Sprint. This is what T-Mobile did with MetroPCS, what AT&T did with Leap, and what AT&T planned to do with T-Mobile.” Del Deo said the same tower numbers disclosed by the companies grossly underestimated the churn risk associated with those deals, and based on the numbers disclosed yesterday by T-Mobile and Sprint, will also underestimate the churn risk in this deal. “However, because T-Mobile’s and Sprint’s spectrum bands don’t align nicely (unlike the other deals I cited), there needs to be more amendment work on the surviving towers, which acts as a nice offset,” he said.
“The impact on towers (a net reduction of 25K macro sites) is about what we had modeled,” said Del Deo’s colleague, Craig Moffett of MoffettNathanson. Although Moffett gives the deal a 50/50 chance of going through, saying U.S. regulators may not allow wireless competition to drop to three major firms.
According to the analysts at Macquarie Research, “towercos could be pressured as investors focus on TMUS-S churn. Post deal, NewCo will have 110k sites; after decommissioning 35k and building 10k, it will have a total of 85k. We note AMT disclosed that for sites where TMUS/S had separate leases, TMUS/S represented 3-4% of its total property revenues.”
The chances of the merger coming to fruition prompted Jennifer Fritzsche of Wells Fargo to say: “this won’t be easy. While we believe the messaging itself is quite compelling – job creation, infrastructure investment to keep up with China, the wireless industry moving beyond four players, etc. But the numbers become harder when looked at purely from a market concentration standpoint. The DoJ looks very hard at the HHI (Herfindahl-Hirschman Index) as the accepted measure of market concentration. S/TMUS would become the second-largest wireless player behind VZ for retail prepaid/postpaid customers. While their lack of coverage in certain rural markets may strengthen the regulatory argument, we are uncertain if the HHI in certain key U.S. cities may come into play,” she said.
Colby Synesael, analyst at Cowen said, “On the network savings, mgmt. noted the combined company will have ~85K towers (~110K combined towers today, decommissioning ~35K towers, adding ~10K new towers) but will deploy spectrum (and necessary radio equipment) on each other’s towers, phasing out Sprint’s (CDMA) network over ~3 years. Mgmt. also noted its plans to have 50K small cell nodes (vs. a combined <10K nodes deployed today).” (ed: “~” means approximately)
The Trade Associations
CCA, The Competitive Carriers Association:
“We are at beginning of the merger process and the various government agencies will focus on the challenges, advantages and benefits of a combined entity for the American consumers in rural and urban areas alike,” said CCA President & CEO Steven K. Berry. “Each CCA member will decide what is in its own best interest. CCA also will evaluate the challenges and benefits of the potential merger and seek input from our collective membership. Sprint and T-Mobile are competitive carriers and also CCA members because they share many of the policy goals and complementary relationships with smaller carriers. These relationships will inform the individual member positions regarding the potential merger. It would be wise not to prejudge this transaction until we have more details. We look forward to learning more as the process unfolds.”
WIA:
Had not prepared a statement by press time for this article.
By: Jim Fryer, Managing Editor, Inside Towers
April 30, 2018
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