I’m sure you saw that the Wall Street Journal reported this week T-Mobile and Sprint are once again flirting with each other, just several months after their parental chaperones told them to stop talking and come back home. Not surprisingly, the Towers sold off on this news.
We’ve published quite a bit on the effects a deal would have American Tower, Crown Castle, and SBA. “U.S. Towers: Churn Down for What? Dimensioning TMUS/S Consolidation Risk and What’s in the Stocks,” November 14, 2016 being our most recent “real” report on the topic), and a number of clients have asked if the math we used back then is still appropriate. The short answer is yes, but we thought it might be helpful to quickly refresh the numbers (Chart 1) and very briefly review the ideas behind them. If the deal happens and there are no offsets, we’d estimate an $8 per share hit to American Tower, $9 to Crown Castle, and $14 to SBA.
We’ve always thought same-tower overlaps – the metrics reported by the towercos to dimension this risk – understated the number of sites that would be decommissioned in a deal. In practice, T-Mobile and Sprint would choose a “surviving” network, presumably T-Mobile’s, and migrate spectrum from the “legacy” network over. When the legacy network’s spectrum and subscribers had been migrated, the legacy network would be shut down. A chunk of legacy sites would be retained, and some number of sites from the surviving network decommissioned. It’s part art, part science, but we’ve assumed ~60 percent of Sprint sites and ~15 percent of T-Mobile’s would ultimately go away. As a partial offset, the companies would have to upgrade all the sites they retain to accommodate each other’s spectrum bands – Sprint’s 800 MHz and 2.5 GHz on T-Mobile’s sites, and T-Mobile’s 600 MHz, 700 MHz, and AWS on Sprint’s sites – which would entail amendment revenue. Leasing activity would likely initially increase as the networks were prepped for spectrum migrations, and then churn would hit as leases ran out, with an average term of five years or so (we would note that the MLAs Sprint recently signed with Crown Castle and SBA included term extensions on at least a portion of its sites, so that would shield them for a couple more years). The present value of what’s being lost, netted against the interim benefit of heightened leasing activity, yields the NPV hit.
There are other factors to consider as well. For example, if Sprint and T-Mobile were forced by regulators to divest spectrum to close a deal, AT&T and Verizon would likely have to incur amendment revenue to deploy it, acting as another offset. We dimension what this might look like in Chart 1. From a bigger picture perspective, what would going from four to three players mean for the odds of Dish Network entering as a new number four? That’s hard to handicap, but the odds would be higher, and the value of a full Dish build-out would likely more than offset the hit from T-Mobile/Sprint. It’s worth bearing other limbs on the decision tree in mind.
Finally, we need to consider the probability that an agreement is reached and, if an agreement is reached, what the odds of approval in DC look like. We’re not smart enough to know what those are, but the stock reactions suggest Mr. Market is baking in a fairly high probability that it happens, at least based on our math.
I hope this refresh was helpful. Feel free to reach out to me if you want to discuss further.
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.”
In mid-December, T-Mobile acquired Over-The-Top television provider Layer3 TV, which integrates television, streaming online video content and social media. Sprint formed an infrastructure partnership with Altice USA, the fourth largest U.S. cable company in November, allowing reciprocal access between the two companies’ networks.
Tony Peduto: T-Mobile’s purchase of of Layer3 TV follows the trend set by the AT&T/DirecTV deal. T-Mobile will be able to take a viable product offering nationwide and compete with cable companies. Sprint’s agreement with Altice USA is more evidence of the trend of wireless companies getting into cable, and cable companies getting into wireless. Does this bring together Comcast, Charter and MediaCom to provide the same?
In the wake of the failed Sprint/T-Mobile merger, the wireless infrastructure industry may experience a resurgence in Sprint’s network buildout similar to the rebirth of T-Mobile after it marriage to AT&T was nullified. In fact, Sprint has a multiple-prong plan for growing its wireless infrastructure that will enhance capacity and throughput, Tarek Robbiati, the CFO of Sprint, told an audience at the UBS Global Media Communications Brokers Conference in New York City this week.
Sprint’s network rollouts will include tri-banding a majority of its towers to operate in the 800 MHz, 1900 MHz and 2500 MHz bands.
“We have not rolled out 2500 MHz in full across our footprint. We’ve rolled it out roughly on 50 percent of all the towers covering 70 percent of our pops,” Robbiati said in a SeekingAlpha.com transcript. “We know that when we deploy 2500 MHz, the experience that our customer witness is much, much better than when we don’t. So that is number one, the focus on network deployment.”
Sprint is also going to roll out “a few thousand towers,” to increase its coverage in neighborhood. “Our network footprint is probably in need of an expansion in some specific neighborhoods where we feel we are a little bit short,” Robbiati said.
Additionally, the carrier plans to deploy massive multiple-input, multiple-output (MIMO) radio systems that will involve 64 transmission element and 64 receive elements.
“I don’t think any other player will do it to the same extent that we will, we are going to be aggressively rolling out MIMO as part of the tower upgrades and neighborhood expansions,
Robbiati said, “and that helps really drive spectrum efficiency to the next level and increase our capacity by a factor of 10x.”
Sprint’s increase in capex will boost in small cell densification, combining mini-macros in right of way and air strands with its business/residential Magic Boxes, which were launched in spring of 2017.
“We will be spending $5 billion to $6 billion next year in deploying our network,” Robbiati said. “You could expect that probably for a couple of years we would be at around that level, but then we will come back down from that level to a more sustainable CapEx-to-sales ratio and a $4 billion to $5 billion of CapEx spend per year.”
Cable companies have alway been thought to be a factor in the wireless world with their embedded backhaul and and ready-made customer bases. But for one reason or another their promise has not become a reality, until now, perhaps.
In the wake of the failure of the T-Mobile-Sprint merger, Sprint announced an infrastructure partnership with Altice USA, a French company that purchased Cablevision and Suddenlink in 2015 to become the fourth largest U.S. cable company. The use of Altice USA’s fiber network will reduce Sprint’s backhaul costs.
Sprint officials said the deal had been in the works for six months and was not contingent on the completion of the T-Mobile merger, according to Sprint Chief Financial Officer Tarek Robbiati.
The agreement creates reciprocal access between the two companies’ networks. Altice USA will resell minutes as an MVNO on the Sprint network, while Sprint will be able to use Altice USA’s fiber network to backhaul its densified small cell network. The “infrastructure swap” was the first of its type, according to Robbiati.
“We have not seen enormous progress outside of Sprint in terms of densifying networks, which is key to the 5G future not just of Sprint but the whole country,” Robbiati said. “We have created a platform to do just that with several thousand small cells that we will be able to deploy.”
Sprint’s deal with Altice USA is part of the same strategy that led to a joint venture (https://www.aglmediagroup.com/lendlease-softbank-tower-jv-to-buy-8000-tower-rooftop-sites/) between Softbank Group (owner of Sprint) and Lendlease Group to buy 8,000 tower and rooftop sites. Both agreements further Sprint’s goal of densifying its network within its footprint.
“The priority is to significantly upgrade our existing footprint in terms of towers, parallel to densifying our [small cell] networks in our footprint, which covers the vast majority of the country,” Robbiati said.
During Sprint’s Q3 earning call, Softbank CEO Masayoshi Son said the carrier would increase its capex spend $3.5 billion in 2017 up to $5-6 billion in the medium-term.
“It is important that we invest in our network but also that the investment is really geared toward densifying our footprint,” Robbiati said. “The [Altice USA] agreement lowers the capital intensity of our buildout because we are literally sharing infrastructure between the parties. As well as giving us the ability to quickly deploy infrastructure at a minimal capital level, it is a wonderful opportunity to keep our network opex under control.”
Sprint is interested in solving the cable/MVNO model, he said, and is open to a similar agreement with other cable operators.
Altice USA provides broadband, pay television, telephone, Wi-Fi hotspot access, proprietary content and advertising services to 4.9 million residential and business customers across 21 states, including Arizona, Arkansas, California, Louisiana, Missouri, North Carolina, Oklahoma, Texas, West Virginia, New York, New Jersey, Connecticut and Pennsylvania.
J. Sharpe Smith is Senior Editor of the AGL eDigest. He joined AGL in 2007 as contributing editor to the magazine and as editor of eDigest email newsletter. He has 27 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.