Bet on the Sprint/T-Mobile mega merger wounding towercos

In Featured News by Wireless Estimator

DANCING WITH DETAILS - Sprint CEO Marcello Claure and T-Mobile CEO John Legere want to take on the titans of AT&T and Verizon. Two short years ago both executives were hurling insults at each other. Claure, in a tweet, replied to Legere, “You are truly a con artist.” If he is, he’ll need to use that skillset to convince regulators that the merger is solely about their desire to make the USA the world leader in 5G.

DANCING WITH DETAILS – Sprint CEO Marcelo Claure and T-Mobile CEO John Legere want to take on the titans of AT&T and Verizon. Two short years ago both executives were hurling insults at each other. Claure, in a tweet, replied to Legere, “You are truly a con artist.” If he is, he’ll need to use that skillset to convince regulators that the merger is solely about their desire to make the USA the world leader in 5G and not let China beat us.

If the proposed T-Mobile and Sprint merger announced Sunday is approved by federal regulators, both companies said that they expect the marriage creating the nation’s second largest carrier would be sometime in July 2019.

However, it’s been identified by the carriers that fully combining the companies is another three to four years, possibly longer.

Displaying their lack of fundamental industry knowledge, some reporters are questioning whether the $26.5 billion mega merger could affect future revenues of the major towercos. It will.

SBA Communications CEO Jeffrey Stoops said during yesterday evening’s Q1 earnings call, “There is still a lot to be learned,” such as whether the company’s MIMO modifications will be reduced as the carriers determine their future technology needs as they await regulatory approval.

Stoops said SBA saw solid leasing contributions from new leases and amendments signed with Sprint under their MLA that they signed during their fourth quarter, “although we obviously will be monitoring any potential impacts on our operational activity levels as a result of the recently announced Sprint/T-Mobile merger.”

Although FCC Chairman Ajit Pai appears to be open to the merger, many of the DOJ officials that were against the 2014 joining of the two companies are still in  office today.

The carriers have already outlined their pitch to woo regulators – it’s all about the promise of fast mobile connectivity in all areas of the county, and having America lead the world in 5G.

In previous mergers, it was typically reported by towercos that it was several years before they saw any termination notices.

Making a silk purse out of sow’s ear
Traditionally, towercos will not want to alienate any of their key clients and will state that mergers will frequently create a stronger base that will strengthen the overall industry.

In 2016, addressing the possibility of a T-Mobile/Sprint merger, American Tower EVP/CFO Tom Bartlett informed analysts at a communications conference that his company has “some pretty good” experience on consolidation in the industry over the last 10 years or so, and in major mergers, American Tower was getting 20% to 25% more business from the combined entity than from the total of both carriers about a year after the merger.

Although those details might have been correct, the past decade saw a more robust build program required for LTE and 4G, possibly providing a flawed analysis of post-merger activity.

In addition, the combined company has already said that it was going to decommission 35,000 macro towers – most of them likely to be Sprint sites – and would only add 10,000 new towers in the coming years as well as approximately 50,000 new small cells.

During this morning’s American Tower Q1 conference call, CEO James Taiclet said, should the transaction proceed, although there may ultimately be less total tower sites in the merged network, “each site is likely to have more spectrum bands, more data traffic and more equipment installed, which would result in offsetting amendment benefits.”

The carriers have said that T-Mobile’s nationwide network will be the “anchor” of the combined network and business, with “selected Sprint ‘keep’ sites” across the US helping to increase coverage and density.

On the upside of the merger, Stoops said, “I’m not a product expert, but to my knowledge, there is no single radio unit and certainly no single antenna unit that covers the spectrum, covers the range of spectrum that will be deployed by the combined company. So, you’re looking at multiple units to cover that full range of spectrum. And then if you start to get to the desired MIMO configuration on the antennas, that actually could add quite a bit of weight, and that’s obviously depending on the load and things like that, that will impact the price. So, there could be a wide range of outcomes there.”

American Tower Corp. put out a statement to its investors on Sunday stating that on sites where the companies had separate leases for antenna space, revenue generated by Sprint made up 4% of the company’s consolidated property revenues, and T-Mobile about 3% as of Dec. 31.

SBA said yesterday that Sprint accounted for 15.6% and T-Mobile accounted for 16.1% of its total consolidated site leasing revenue.

Crown Castle said that T-Mobile and Sprint represented approximately 19% and 14%, respectively, of revenue.

Contractors could see an increase in business
Three larger infrastructure contractors that Wireless Estimator contacted said that it was too early to assess how it would affect their business. Two of them provide services to both carriers with one having a greater amount of their business with Sprint.

“I could see us being very busy for the next few years doing decommissioning and continued MIMO work,” said one contractor.

He noted that trying to project carrier needs is oftentimes fruitless.

“This industry turns on a dime and it’s either feast or famine,” he said.

In a conference call with Wall Street analysts, Sprint CEO Marcelo Claure recognized that getting approval for the merger is “the elephant in the room.”

“This isn’t a case of going from 4 to 3 wireless companies — there are now at least 7 or 8 big competitors in this converging market,” T-Mobile chief executive John Legere said in a statement.

Legere pulls the China card
“All roads lead to Washington,” T-Mobile CEO John Legere said in a CNBC interview yesterday, playing the nationalist card in his case to the Trump administration. He said China is beating the U.S. on 5G, but the new company can change that. “We are behind. It’s the early innovation cycle of 5G. We are behind China. This is not something we can allow.”

However, Legere offered no examples as to how a merger would further grow 5G since it appears to be maturing quite nicely and will continue to grow with or without their support.

The combined company plans to invest up to $40 billion in its network in the first three years, which executives said would result in more hiring and better services.

Shares of Sprint nosedived  almost 14 percent and T-Mobile fell 6 percent yesterday, possibly caused by concerns that regulators will not permit the transaction to close, according to analysts.

Speculation on Friday that there might be a deal in the future saw all three towercos’ stock drop. American Tower and SBA Communication saw a slight rebound yesterday.

In early morning trading, SBA’s stock slid 3 percent, American Tower was down 1 percent and Crown Castle less than 1 percent possibly because of generally lower market averages.