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: [email protected]
Sprint plans to increase the total number of its macro-sites by nearly 20 percent to expand its total footprint, Marcelo Claure, Sprint CEO, said during the company’s the third quarter 2017 earnings call. It has already issued search rings to tower and infrastructure companies.
Sprint also plans to tri-band nearly all of our existing sites with all three of our spectrum bands 800 MHz, 1.9 GHz and 2.5 GHz to provide increased coverage across its footprint.
“Roughly half of our macro sites have 2.5 GHz today, and we have already started on thousands of site upgrades and expect to complete the majority of site upgrades in 2018. We have already signed agreements with two major tower companies to facilitate a swift rollout of these site upgrades,” Claure said.
The plan also calls for additional small cells including Sprint Magic Boxes, mini-macros and strand mounts, taking advantage of agreements with Altice and Cox to provide backhaul. The company has already deployed more than 80,000 Sprint Magic Boxes in 200 cities and plans to deploy 1 million in the long run.
“Next, we plan to deploy more than 40,000 outdoor small cell solutions. In addition, our strategic agreements with Altice and Cox will also enable us to quickly and cost effectively deploy our various small cell solutions, including at least 15,000 strand mounted small cells and improved backhaul economics for our macro sites. We are already working to light up Long Island, and look forward to expanding the rest of Altice and Cox footprints to accelerate our network deployment,” Claure said.
Deployment of 64X transmit 64X receive Massive MIMO 2.5 GHz radios will increase capacity up to 10 times that of current LTE systems and increase data speeds in high-traffic locations. Massive MIMO support both LTE and future 5G NR (New Radio) modes simultaneously without additional tower climbs.
“Now let me tell you about another element of our Next-Gen Network plan that we are beyond excited about, and that is the rollout of Massive MIMO. It leverages our 2.5 GHz and creates a strategic advantage for Sprint,” Claure said. “Massive MIMO involves deploying a new integrated unit that will have 128 antenna elements with 64 transmitters and 64 receivers and which deliver a capacity increase of up to 10 times on LTE relative to current LTE systems, while also increasing our coverage and cell edge performance.”
Sprint is planning on using Massive MIMO as its bridge to 5G, because the Massive MIMO radios are software upgradeable to 5G NR.
The First to 5G?
Sprint plans to launch commercial mobile 5G by the first half of 2019. The carrier is best positioned to be the first carrier with a nationwide mobile 5G platform, according to Claure, because it will use 2.5 GHz spectrum instead of millimeter wave spectrum, which has wide bands but limited propagation.
“Sprint is the only carrier that doesn’t have to compromise what 5G can deliver because we can deliver the super-wide channels of more than 100 megahertz while still delivering mid-band coverage characteristics,” Claure said. “With more than 160 megahertz of 2.5 GHz spectrum available in the top 100 U.S. markets, this gives Sprint the largest nationwide bloc of sub-6 GHz 5G spectrum available in the U.S.”
January 26, 2016 — After a chaotic week of speculation in the press and on Wall Street, Sprint announced that it is executing on the same small cell densification plan that it had laid out previously. The announcement was meant as a response to an article in Re/Code that predicted Sprint would embark on a “radical overhaul” of its network, removing equipment from space leased on towers owned by American Tower and Crown Castle International.
“This is NOT a rip and replace strategy,” Marcelo Claure, Sprint CEO, told today’s 3Q, 2015, earnings call. “We continue to be focused on network performance as well as efficiency of capital and opex with the cost of building these costs materially less than macro sites in the past.”
Claure added that he is confident the company’s densification and optimization strategy will position the carrier for network parity or superiority within two years.
Sprint is deploying small cells using crowd source data, which allows a surgical approach to relieving customer pain points. Claure emphasized the importance to Sprint that any network changes do not harm the customer experience.
“The best part is this is it will be a progressive build whereby the customer experience will only improve incrementally with no disruptions in the service from existing sites,” he said.
Claure said Sprint’s best ever network performance is the result increased LTE deployment, spectrum, two-channel (2×20 megahertz) carrier aggregation in the 2.5 GHz band and antenna beamforming, which allows for create wider channels, more capacity and faster speeds.
“We are proud about how far the network has come and are excited to take it to new levels as we continue focus on densifying our network,” he said.
Sprint Will Seek Lowest Cost Solutions for Network Enhancement
Not to say that money isn’t an issue for Sprint. CFO John Saw said the carrier is looking at all the options to find the lowest prices for sites, whether it is an existing macro tower, a build to suit, a roof top or a pole attachment.
“We are going to be very opportunistic to lower costs,” he said. “There are opportunities to reduce our costs in backhaul, leveraging a hybrid approach of fiber and wireless. We are also testing 2.5 GHz spectrum for backhauling small cells, which we think will be more cost-efficient than trenching fiber.”
Sprint also plans to lower its roaming costs by over-building in high-roaming areas and working with partner carriers through the Competitive Carrier Association to expand its LTE footprint in rural areas.
May 14, 2015 — The words “massive densification” of a cellular network are enough to make any wireless infrastructure provider salivate. And when they came from lips of Marcelo Claure, president and CEO of Sprint, during fourth quarter 2014 earnings call, it sounded really good. But the issues surrounding cash burn and sinking revenues continue to cause concern among analysts about the carrier’s financial health.
The head of Sprint discussed increasing the macro, small and even Wi-Fi sites across its entire spectrum holdings as it transitions to VoLTE. The carrier has issued RFPs to vendors and Claure reported “significant potential savings compared to our Network Vision pricing.”
Sprint is finalizing its plan for a long-term next-generation network predicated on deploying a lot more infrastructure in its network.
“The only way you’re going to get the true outcome or you’re going to be able to truly unload the value of the rich spectrum that we have is by massively densifying our network,” Claure said. “And where we are right now is trying to figure out what is the right combination between macro sites and between small cells.”
Additionally, Sprint will add Wi-Fi as a complementary layer to its network, supporting Wi-Fi calling on 27 devices. It has entered into a relationship with Boingo, which enables Wi-Fi roaming and connectivity in 35 major U.S. airports.
“Sprint continues to clearly be focused on the network improvement – and has seen some third party results verifying its progress,” wrote Jennifer Fritzsche, senior analyst, Wells Fargo. “Focus continues as management indicated it is in the final stages of engineering the network densification plan (i.e.: mix of macro sites and small cells). We believe Sprint should continue to see positive movements in the right direction.”
Sprint forecast accrued CapEx is going to be about $5 billion in fiscal 2015, which is targeted at 2.5 GHz deployment. Fritzsche was looking for form visibility into the carrier’s network investment plan, however.
“In a somewhat surprising move, Sprint provided limited FY2015 outlook, and capex was viewed as more of a disappointment considering an expected announcement of a major network overhaul did not come,” Fritzsche wrote.
Questions About Sprint’s Financial Picture
Even as Sprint makes big deployment plans, some analysts question the finances of the big four carrier. Everyone has seen the commercials where spokesman Kevin Durant cuts your cellular bill in half, and that has led to increased users, but lower revenue per user. Service revenue for the fourth quarter was down 9.4 percent to $7.14B and equipment revenue was up 14.5 percent to $1.14B.
“Sprint reported mixed FQ4 2014 results, in our view, as revenue came in light of our estimates but EBITDA beat,” wrote Fritzsche. “The company reported subscriber additions that were better than expected, though still resulted in a loss of postpay phone customers that were more than offset by tablet additions.”
And then there is the issue of cash burn. Cash capex was $2 billion in the fourth quarter, compared with $1.5 billion year over year, partly because of the 2.5 GHz build out. Free cash flow was negative $914 million for the quarter compared to negative $1.1 billion year over year.
Sprint officials assured stock analysts that the liquidity was not an issue for concern. Sprint ended the quarter with a total liquidity position of $7.5 billion including cash, cash equivalents and short-term investments of $4.2 billion as well as $2.8 billion of undrawn borrowing capacity under its revolving bank credit facility and $500 million of undrawn capacity under its service receivables financing agreement at the end of the quarter.
Information in the article courtesy of Seeking Alpha.