Those in the wireless infrastructure industry reading the tea leaves after yesterday’s announcement of the T-Mobile/Sprint merger were left with mixed emotions. Macro sites will decrease, while small cells used for 5G will get a shot in the arm. Tower services companies will benefit either way.
The merged company will invest $40B in the network but will also decommission 35,000 macrosites and add 10,000 towers and 50,000 small cells. In sum, 110,000 macro sites will be reduced to 85,000 towers, according to T-Mobile US CEO John Legere. “About $26B of the $43B [in synergy from the merger] is from network: site decommissioning and site avoidance,” Legere said.
While the tower industry will definitely lose sites and money as a result of the merger, Keith Pennachio, EVP at SQUAN, said the deal will make the carriers more competitive, which will be good for the tower industry in the long run.
“The T-Mobile/Sprint merger has me somewhat conflicted,” he said. “I think that from a high level point of view, the industry needs the consolidation and the timing feels right. The amount of spectrum Sprint owns combined with the forward-thinking ‘un-carrier’ attitude of T-Mobile makes the merger formidable for the competition of the combined entity. Sprint’s debt load is unsustainable in the long run, which could hamper CAPEX spend for 5G deployment on the broadest scale. It’s only a matter of time before cash constraints put Sprint further behind.”
Legere and Sprint CEO Marcelo Claure appeared on CNBC’s “Squawk on the Street” to discuss how the merger would result in an increase in jobs, benefit competition and push the United States toward 5G technology. All talking points for the regulators.
One of the biggest fears when a merger is announced is that infrastructure buildout may be put on hold. Claure said his company will not back off during the regulatory review period. Claure and Legere expect the merger approval process to take 18 months.
“We’re gonna continue to attract AT&T, T-Mobile, and Verizon customers into the Sprint network,” Claure said. “We’re going to invest. This is gonna be the largest investment in Sprint in terms of continuing to build our 5G network. So we’re competitors and we’re gonna continue to run the company the same way the last four years.”
Sprint and T-Mobile US each account for 8 percent of American Tower’s consolidated property revenues. On sites where both companies had separate leases for antenna space, the revenue generated from Sprint and T-Mobile represent 4 percent and 3 percent of American Tower’s consolidated property revenues, respectively. The average lease term on these sites with Sprint and T-Mobile US is three to four years.
Ken Schmidt, Steel in the Air, wrote that Sprint/Nextel sold its towers to SBA Communications, Crown Castle and American Tower, while T-Mobile sold its towers to Crown Castle and American Tower. T-Mobile was the anchor on many of the build-to-suit towers purchased by SBA.
“So, looking at same-company towers ignores nearby cell sites on towers by other tower companies and even worse, those macrocells on non-tower company structures like buildings, water towers, and billboard,” Schmidt wrote. “They indicate that 35,000 sites will be terminated which will almost all likely be Sprint sites and many of which are not on towers where T-Mobile is as well but on other towers nearby.”
MoffettNathanson Analyst Nick Del Deo wrote that the deal would not be good for towers, but he held that a consolidated T-Mobile/Sprint would create room in the wireless market for a new entrant. The obvious possibility would come in the form of a combined Charter/Comcast. Interestingly, in the first quarter of this year, Comcast added more postpaid phone customers than AT&T and Verizon combined.
“If successfully concluded, [the Sprint/T-Mobile deal] would be a negative for the Towers, at least in the medium-term (if consolidation stimulated the entry of a new fourth player, it could be modestly positive over the long-term),” Del Deo wrote.
Now It’s Up to the Feds
The resulting company, which will use the T-Mobile name, Legere will have pro forma revenue this year of $75 billion, and service revenue is $55B to $57B. In 2025, he projected the merged entity would generate $16 – $18 billion dollars of free cash flow. The company would also have 67 percent market share, inviting close scrutiny by the feds.
The deal will soon be examined by the Department of Justice, which will judge whether it reduces competition in the marketplace Legere wasted no time in making his case that the merger will be healthy for the marketplace. He made the case the DoJ must approve the merger to allow the United States compete global in the so-called race to 5G, citing the CTIA study that said China is ahead.
“It’s the early innovation cycle of 5G,” Legere said. “We are behind China. This is not something we can allow. This will be the first company — because of our available spectrum in the 600 MHz and 2.5 GHz bands – to build the nationwide broad coverage 5G service.”
Legere expects that the new T-Mobile’s $40B investment will push AT&T, Verizon and Comcast to pony up an additional $20B.
“That’s a story that Washington wants to hear,” he said. “It’s not about four to three. It’s about zero to one [5G network]. “This deal will get approved because it’s great for the United States.”
Claure said the merger is unique, and ostensibly should be approved by regulators, because it will allow T-Mobile and Sprint to build a 5G network that will be more competitive in the marketplace.
“We’re actually going to offer the best products, best services at lower prices,” he said. “So we plan to make the market more competitive. You’ve seen two disruptive companies, T-Mobile and Sprint. Together, we can turbo charge that.”
Claure said, as a result of the merger, the company would add tens of thousands of jobs in the first three years.
“This is a growth story in which the synergies – the synergies of this deal are more valuable than each company on a stand-alone basis. So I think this is an amazing deal for everybody around,” Claure said.
J. Sharpe Smith
J. Sharpe Smith joined AGL in 2007 as contributing editor to the magazine and as editor of eDigest email newsletter. He has 29 years of experience writing about industrial communications, paging, cellular, small cells, DAS and towers. Previously, he worked for the Enterprise Wireless Alliance as editor of the Enterprise Wireless Magazine. Before that, he edited the Wireless Journal for CTIA and he began his wireless journalism career with Phillips Publishing, now Access Intelligence. Sharpe Smith may be contacted at: firstname.lastname@example.org.