Any 2020 forecast for the tower industry begins with the same question. Will the Sprint/T-Mobile merger pass muster with the courts or not? As we near the long-overdue decision, many believe the tower industry stands to benefit either way. The only difference, according to C-level executives, would be the timing.
If the deal goes through, Bernard Borghei, EVP of operations, Vertical Bridge, believes it will be positive for towers, because the wireless industry will become more competitive more competitive as a result.
“You will see some integration activities between T-Mobile and Sprint to begin with, but then the focus will turn to aggressively building out the new TMO network based on their commitments made to the FCC and the DoJ,” he said. “If the merger doesn’t go through, some say the pressure will be off of AT&T and Verizon. I don’t know if they can relax. We saw T-Mobile add 7 million new subscribers in the fourth quarter, despite the pending merger.”
If the deal doesn’t go through, T-Mobile will need to densify to make up the additional spectrum it hoped to gain through the merger, according to Tony Sabatino, inSite Wireless Group president and chief strategy officer. “They will need to maximize their ability to provide capacity. With a certain about of spectrum you can only go so far and then you have cell split, whether it is with a cell tower or a small cell,” he said.
In the case of a no-deal, Sprint may opt to renegotiate its debt through a Chapter 11 reorganization. That process will take time, possibly delaying growth Sprint by around 18 months. However, with less debt and ample assets, it is not a bad story for Sprint. It would emerge a healthy carrier.
There is also an upside to a no-deal situation for Dish Network. With the T-Mobile roaming agreement in hand, Dish Network can begin to deploy its network. Dish can still secure a partnership with either Sprint or T-Mobile to put its spectrum to work.
“If the deal doesn’t go through, I see some kind of aligned co-build,” Sabatino said. “Charlie [Ergen] has to work with Sprint and T-Mobile. There are a lot of collocation opportunities. The crazy thing is Sprint’s been down this partnership road several times, whether it was LightSquared or Clearwire and now, maybe, Dish. I know they can align on such an opportunity.”
While he looks forward to the end of the uncertainty caused by the merger, Brendan Cavanagh, EVP & CFO, SBA Communications, said the tower industry will benefit in the long term, no matter the end result at the Citi 2020 TMT West Conference, last week, in Las Vegas.
“Whether there is a deal or no deal in the Sprint/T-Mobile merger, I’m not sure over the long term whether it has a material difference,” he said. “In the short term, if the deal is approved, we would expect a rapid uptick in activity levels with T-Mobile, as well as DISH. If the deal is not approved, the outcome over the long term is not that materially different, because the carriers still have the spectrum, which needs to be deployed and we will benefit.”
Cavanaugh admitted that in the last four months there has been very little activity from Sprint/T-Mobile. The tower industry can expect the first half to be a bit slower as it recovers from the fourth quarter 2019 slowdown.
“When you have that type of slowdown in signing up new leases and new amendments, it will certainly affect 2020’s financials,” he said. “The growth potential is muted in the short term. Once that gets released, it will change very quickly and materially.”
Analyst Jeff Kagan wrote on Equities.com that while he has found the case made by T-Mobile and Sprint compelling, and the FCC has approved it, approval of the merger seems to be less than a sure thing.
“If the merger is not approved, however, AT&T and Verizon will continue to show the same level of growth. T-Mobile will still show growth, although with their need for spectrum, that growth may slow down unless they can find it elsewhere,” Kagan wrote. “Sprint is the wild card. They need this merger for survival and growth. Without it, they will either continue to do business under a marketing disadvantage, or they could be acquired by another company.”