J. Sharpe Smith —
Another piece of the puzzle fell into place in Sprint’s quest to merge with T-Mobile this week, as the carrier’s majority owner Deutsche Telecom AG agreed to Sprint-owner Softbank’s plan to buy T-Mobile for a price tag of $32 billion, according to published reports.
The hook up with T-Mobile may be needed now more than ever, according to research by RBC Capital Markets, which reports that Sprint’s network modernization progress has stalled since February.
“Our ongoing monitoring of Sprint’s network upgrades indicate that overall progress has been slow on both voice- and data-related cell-site improvements since February,” RBC analyst Jonathan Atkin wrote. “However, there has been some incremental progress in data speed upgrades, particularly in the Spark markets (e.g., 75 data speed upgrades in New York versus February).” New York topped Sprint’s network upgrade list with 1,332 data speed upgrades, 32 data capacity upgrades and 21 voice upgrades, followed by Los Angeles with 1,009 data speed upgrades, 3 data capacity upgrades and no voice upgrades.
However, RBC is seeing increased activity in the 2.5 GHz band at Sprint as the 8T8R LTE equipment starts to ship.
Perhaps as a result of the slow progress of Sprint’s network upgrades, subscribers’ perceptions of its networks have suffered. Its voice score of -26 percent was the worst among the national carriers, and was down 9 percent from the previous survey results from January 2014, according to RBC’s research.
“Sprint also trailed its peers, which posted net negative scores in the single digits,” Atkins wrote. “Of note, we found that respondents in Sprint’s Spark markets reported worse network performance for both data and voice quality (18 percent and 29 percent net negative scores, respectively) versus respondents in non-Spark markets (9 percent and 22 percent net negative scores). Our previous survey of Spark versus non-Spark markets had shown an incremental improvement in Spark markets.”
Atkins noted in an interview with AGL Link that the pairing of Sprint and T-Mobile has some nice synergies for the latter’s sites in urban areas.
“Sprint’s 2.5 GHz spectrum position, coupled with the urban/metro focus of T-Mobile’s transmission locations, suggest to us that Sprint, upon consummating a merger with T-Mobile, would add 2.5 GHz LTE equipment at T-Mobile sites, rather than remove gear, in order to meet its network density requirements,” Atkins said.
Now Sprint and T-Mobile just need to convince the government that having just three national carriers is sufficient for wireless competition. That may be easier said than done.
J. Sharpe Smith is senior editor, AGL Link.
Sprint is in the final stretch of its Network Vision LTE overhaul, adding coverage in 41 cities for a total of 443 metros and six additional Sprint Spark cities for a total of 24 markets in the first quarter, Chief Network Officer John Saw said during the company’s earnings call.
And it can’t happen quickly enough for the carrier.
“In four large metropolitan markets where the voice and 3G network replacement has been largely complete for months,” said Dan Hesse, Sprint CEO. “We are seeing improvements in churn and, on a lagging basis, gross add share. In those markets, we have now returned to consumers postpaid positive net adds.”
The Network Vision LTE rollout is on track to cover 250 million by mid-year, and Sprint Spark, an enhanced LTE technology that operates at speeds of 60 Mbps, is expected to cover 100 million people by year-end.
“Replacement of our legacy voice and 3G networks continues and we expect to substantially complete our 3G, 1.9-GHz network modernization by mid-year,” Saw said. “In addition, we expect to have the voice service on our 800-MHz spectrum on air across the majority of our footprint by the middle of the year, further enhancing the coverage and quality of our voice network.”
Sprint began turning up 800-MHz LTE radios in the last quarter and plans to expand Sprint Spark coverage using both the 800-MHz and 2.5-GHz bands. Sprint has completed lab testing of the eight-transmit, eight-receive (8T8R) base station equipment with its three vendors and has begun field testing.
“Regarding the TD LTE build on our 2.5-GHz spectrum, we expect to begin overlaying to 8T8R equipment on our existing network, middle of the year and expect to approximately 100 million total 2.5-GHz LTE pops deployed by the end of the year,” Saw said.
Sprint the Greenest Wireless Carrier
Named the most “Eco Focused” wireless carrier by Compass Intelligence earlier this year, Sprint added another accolade for its recycling practices, receiving the EPA’s WasteWise National Partner of the Year Award for Very Large Companies.
Since 2010, Sprint has diverted more than 74,000 tons of solid waste from landfills. Last year, through the decommissioning of its nationwide iDEN network as part of Network Vision, Sprint diverted more than 175 million pounds of electronic waste from landfills, saving the company more than $275 million.
As a member of the EPA’s SMM Electronics Challenge, which promotes recycling 100 percent of used electronics, Sprint recycled all the network equipment shed during the project: switching equipment, radios, antennas, coaxial cables, lead-acid batteries and more. The initiative averted more than 15 million pounds of lead-acid batteries alone from going into landfills.
By Jennifer Fritzsche…
We recently conducted our quarterly channel checks with RF engineers and other network contacts in our Rolodex to get a touch point on the current spending environment in the wireless arena and how it will affect the tower companies. Recall that these contacts’ revenue trends tend to have a 15- to 18-month lead time on the tower companies business, and that more than 90 percent of the annual revenue is booked on the first day of the year. There tend to be few surprises. That said, we always find these checks helpful as they give us a good idea of the pace of spending and who is doing what. Our checks offer a bullish outlook for the tower companies’ near- and longer-term revenue trends.
Big Red: the Consistent Tortoise in the Race
Our checks suggest that VZ [Verizon Wireless] continues to be the steady Eddie of the Big Four. Making the analogy from the children’s fable, The Tortoise and the Hare, one contact compared VZ to the tortoise in the tale and reminded us of the lesson of the fable — slow and steady wins the race! All the RF engineering contacts we spoke with indicated VZ has its hands in everything right now: new builds, further expansion of its LTE network, dark fiber draws to the cell site, AWS spectrum deployment and small cell/DAS deployment. This last comment was most interesting, as we have heard AT&T speak more publicly about its small cell effort, whereas checks would indicate VZ has been just as focused.
AT&T — Slower in Small Cell Effort, Still Very Busy on Network
Our checks suggest that T (AT&T) is slightly behind its original targets in deploying small cells. Recall that in November 2012, as part of its Project VIP effort, AT&T outlined plans to deploy 40,000 small cells in the three-year period from 2013 to 2015. It is our understanding that T wants to deploy multi-modal/multi-technology small cells, which have HSPA/LTE/Wi-Fi capabilities. Our checks suggest that it has taken longer than expected to get this equipment from the OEMs. That said, our channel checks show that AT&T remains very busy on the DAS side of the house. T has its own small cell solutions group. Like VZ, T also remains very aggressive on deploying its recently acquired AWS spectrum assets and doing many in-fill additions to its macro-site network to further increase the density of its network footprint.
Sprint and T-Mobile Going Slowly but Ramp Is Expected in Second Half 2014, 2015
Sprint and TMUS [T-Mobile US] have been a bit slower than expected in terms of spending, according to our checks. In the case of Sprint, while its target for 100 million covered POPs of 2.5-GHz spectrum by year-end has not changed (either publicly with Wall Street or in communication with its engineers), the deployment of the equipment has been slow in coming. It is unclear where the issue is, but our contacts indicated it has been about six months behind the delivery schedule originally suggested by the OEMs at the early part of 2013.
In the case of TMUS, it seems it is finishing up its network modernization now and ramping up its spending on its recently acquired A block 700-MHz spectrum. We note that both of these upcoming initiatives (700 A Block deployment by TMUS and the 2.5-GHz deployment by Sprint) were not reflected in the tower companies’ 2014 guidance in a meaningful way. Although we expect some effect from this spending in the second half of 2014, a more significant contribution to tower companies’ revenue trends may occur in 2015.
So What Is the Bottom Line for Tower Companies?
While S and TMUS could be more active, we believe AT&T and VZ have been more than active enough to keep the tower companies busy! A few of our contacts indicated some concern that we could see a repeat of last year when all the work that needed to be done got compressed into a shorter time frame. In our view, although this could lead to resource constraints (like we saw at the end of 2013), this pent up demand bodes very well for the tower companies’ 2015 and beyond outlook.
We believe the biggest domestic tower theme that seems to be shaping up for 2015 is definitely small cells. One contact we spoke to indicated that with legacy DAS, nodes needed to be spaced every three or so city blocks. With low-power small cells, these may be deployed every few hundred feet — suggesting, on average, four times the density now seen. In our view, this is hugely positive for the tower companies participating in this arena (CCI and AMT especially). To explore this theme further, Wells Fargo will be hosting a Small Cell Symposium (one-day conference) in New York on July 24.
Jennifer Fritzsche is a managing director in the Equity Research Department at Wells Fargo Securities, where she has focused on the Telecommunications Services sector since 1999.
In addition to completing Network Vision, which is set for mid-2014, Sprint has commenced deploying LTE technology on its 800-MHz spectrum and has set out a plan to deploy LTE on some of its Clearwire sites and to decommission others, according to the annual SEC filing, dated Feb. 16, of the carrier.
At the time of the Sprint acquisition, Clearwire had WiMAX technology deployed on 17,000 cell towers and was in the process of deploying LTE technology on 5,000 of these sites, which has been completed. Sprint plans to expand LTE deployment to 5,000 more Clearwire sites and to decommission 6,000 redundant sites.
“We expect to decommission and terminate the underlying leases. We expect lease exit costs recorded in future periods associated with these sites to range between $50 million to $100 million on a net present value basis,” Sprint wrote. The WiMAX system will be turned off by the end of 2015.
The majority of the LTE roll out in the 800-MHz and 2.5-GHz spectrum bands is to be completed by the end of 2015. Sprint will introduce its Spark Tri-band (800 MHz, 1.9 GHz and 2.5 GHz) phone to correspond with the multi-band LTE roll out. The overall network modernization effort consolidates and optimizes all of Sprint’s spectrum into each base station. The Network Vision project commenced in late 2011 and includes the deployment of enhanced 3G and 4G LTE technology at the carrier’s 38,000 sites.
“The cost to complete these initiatives to modernize our network will be significant. We expect capital expenditures of approximately $8 billion in 2014,” the carrier wrote.
Additionally, Sprint is modifying its existing backhaul architecture to increase the capacity and lower the cost by using Ethernet as opposed to our existing time division multiplexing (TDM) technology.
“We expect to incur termination costs associated with our TDM contractual commitments with third-party vendors ranging between $175 million to $225 million, the majority of which we expect to record through the first quarter of 2016,” the carrier wrote.
In explaining why he wanted to fight back against the market dominance of AT&T and Verizon Wireless, Masayoshi Son took it down to a personal level as he ended his speech to the Competitive Carriers Association (CCA) Global Expo 2014, March 25, in San Antonio, Texas.
He said he was born in a poor, rural village in Japan. “It was not easy for me,” Son said. “However, any kid, whether born rich or poor in an urban or rural area, should have equal opportunity to succeed.”
Son questioned whether the United States market is indeed competitive and allows opportunities in rural areas. Instead, he warned the members of CCA, which are mostly rural wireless carriers, that they are threatened by the expansion of what he called the AT&T/Verizon wireless duopoly.
As proof of that duopoly Son said that AT&T’s and Verizon’s combined subscribership share of the market has grown from 56 percent in 2008 to 73 percent in 2013. Additionally, the two carriers’ share of the enterprise market grew from 51 percent in 2008 to 80 percent in 2013. The AT&T/Verizon Wireless share of the industry’s total profit also grew from 67 percent to 84 percent in the last five years.
The wireless duopoly limits rural carriers’ ability to build out LTE high-speed networks, according to Son, as well as their access to LTE devices.
“Users require state-of-the-art handsets,” Son said. “Access to LTE handsets makes a huge difference between service offerings of AT&T/Verizon versus that of the rural carriers. AT&T has 48 LTE models and Verizon Wireless has 29 devices, while rural carriers have access to only nine models.”
Son committed Softbank and Sprint to support the rural and regional carriers and their access to LTE devices and LTE investment. He said the carrier can provide that support because its service area is complementary and not competitive to that of rural carriers.
“In the case of Sprint and T-Mobile, we are focused on the urban areas, while you are in the rural areas. It is a structural partnership. Together we can compete with the duopoly,” he said.
Clearinghouse Key to Roaming Agreements
CCA has developed a central data hub as a clearinghouse for its members to complete simple, commercially sustainable, individually negotiated, reciprocal roaming agreements with Sprint.
“In the past, to combine those systems we used to have to work one by one using a bilateral data services hub,” Son said. “With this new technology and platform being prepared, multi-lateral cooperation with a data hub as a structure, we can systematically partner with each other.”
Sprint has formed a shared-network alliance with the NetAmerica Alliance, whose members are rural carriers that want to provide LTE service. In the shared network agreement, Sprint will provide wireless service providers with access to 54 megahertz of 800 MHz and 1900 MHz spectrum, access to Sprint’s network and access to the Sprint’s wireless devices. This is the trifecta that solves rural carriers’ data roaming issues, which have blocked them from playing in the 4G wireless space.
The NetAmerica Alliance will provide members with assistance in planning, building and operating their LTE networks in partnership with Sprint. The local network will be built to Sprint Network Vision standards and will deliver services to rural consumers out of a shared Sprint and NetAmerica core for a Tier-1 experience. Additionally, Sprint will contribute ongoing cash payments to the carrier to help cover a percentage of the network build costs.
In return, Sprint customers will have access to NetAmerica Alliance members’ LTE networks, which is expected to improve Sprint’s nationwide coverage.
“We would like to assist the rural carriers with building out LTE systems,” Son said. “You have the spectrum and are building out the network, but without the latest LTE handsets, it is no good. We offer you full support in getting those devices. We would like to help you fight the duopoly with our technology and our spectrum, as well as financially. We need a new technology to fight back.”