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T-Mobile Reports Record Low Postpaid Phone Churn in Q1

Steve Vachon, Technology Business Research

T-Mobile reported record low postpaid phone churn of 1.07 percent in the first quarter because of the carrier’s enhanced LTE network coverage and data speeds coupled with value-added incentives offered to T-Mobile One unlimited data customers, including free Netflix subscriptions and the #GetThanked rewards program. T-Mobile also outperformed rivals in postpaid phone net additions (617,000) for the 17th consecutive quarter.

The marketing of T-Mobile has been particularly successful in attracting millennials and the company has begun targeting additional demographics to bolster subscriber growth, including recently launching service plans targeted to adults over 55 years old (T-Mobile One 55+) as well as military service members (T-Mobile One Military).

TBR projects T-Mobile will remain the leader in postpaid phone net additions throughout 2018 as it aims to extend LTE coverage to 325 million POPs by the end of the year via deployments in the 600MHz band, enabling the carrier to expand retail distribution to markets where it previously did not have a presence. Though phone subscriber growth is decelerating due to the saturating smartphone market and the entry of Xfinity Mobile, T-Mobile is exceeding its own expectations as the company raised its initial 2018 guidance for branded postpaid net additions to between 2.6 million and 3.3 million customers.

T-Mobile will compensate for the saturating smartphone market through its expanding consumer connected device portfolio, through offerings including wearables and its SyncUp Drive connected car platform, as well as targeting commercial IoT customers through the cost savings offered by its NB-IoT network.

Steve Vachon an analyst for Technology Business Research, and independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, networking equipment, wireless, portal and professional services vendors. Serving a global clientele, TBR provides timely and accurate market research and business intelligence in a format that is uniquely tailored to clients’ needs. TBR analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis.

Click here to email Vachon. For more information please visit www.tbri.com.  @SteveTBR


Sprint Under Pressure Despite Cost Cutting, Retail Growth; T-Mobile Merger will Enable Sprint to Resolve its Financial Challenges

By Steve Vachon, Technology Business Research

Despite cutting $1.1 billion in operating expenses over the past year, Sprint’s consolidated operating margin fell 260 basis points to 2.9 percent in 1Q18. Sprint’s wireline business was a significant drag on its consolidated margins, reporting negative operating income of $107 million as the segment lacks the scale to compete against larger wireline rivals such as AT&T, Verizon and CenturyLink.

If the T-Mobile and Sprint merger is successful, TBR expects T-Mobile will likely divest Sprint’s wireline business due to its limited profitability and the division not complementing the company’s core strategic objectives. Though Sprint’s postpaid subscriber net additions improved year-over year (39,000 in 1Q18 vs -118,000 in 1Q17), the company was challenged by high wholesale subscriber losses (-165,000) and falling ARPU stemming from the carrier’s aggressive pricing promotions, contributing to wireless revenue falling 4.6 percent year-to-year. Sprint’s operating margin is also negatively impacted by rising deprecation costs related to its network infrastructure and devices offered as part of its leasing program.

Though Sprint is taking the right steps to cut expenses, the company’s long-term financial position remains uncertain due to the company’s high debt load and struggle to generate adjusted free cash flow (-$240 million in 1Q18) while balancing additional capex spending. These financial difficulties illustrate why the T-Mobile merger is vital to Sprint and that its challenges will only intensify heading into the 5G era. Remaining a standalone company will require intensified investment for Sprint to compete against its rivals in the 5G market, which would likely further weaken Sprint’s financial position. If approved, the merger would serve as a lifeboat for Sprint’s financial challenges and wireless churn among Sprint’s subscriber base would decrease as customers transition to T-Mobile’s higher-quality network. Additionally, the combined company would be able to accelerate 5G deployments by leveraging T-Mobile’s 600MHz spectrum with Sprint’s vast 2.5 GHz licenses, which are expected to provide nationwide average network speeds 15 times faster than current LTE speeds by 2024.

Steve Vachon an analyst for Technology Business Research, and independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, networking equipment, wireless, portal and professional services vendors. Serving a global clientele, TBR provides timely and accurate market research and business intelligence in a format that is uniquely tailored to clients’ needs. TBR analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis.

Click here to email Vachon. For more information please visit www.tbri.com.

All Signs Point to Small Cell Deployment Growth

By J. Sharpe Smith, Senior Editor


Panelists at the Wireless West Conference last week agreed that the wireless industry is shifting its small cell deployment into high gear, discussing both the reasons behind that growth and the issues that might hinder it.

Several factors are driving the deployment of hundreds of thousands of small cells annually, according to Jeff Lewis, president and founder, Verticom, who moderated “Small Cells, Big Market,” from general economic momentum to positive telecom industry trends. Specifically, he also cited the growing number of 5G use cases plus clarity surrounding timelines for 5G NR standards and deployment. Additionally, mobile edge computing is a key component of scalable 5G architecture.

“In addition to FirstNet, you have the TV repack and relocation initiative. You have incremental industry spend of $2 billion. Throw in regulatory and tax reform and you have another $2 billion of free cash flow,” Lewis said. “With the successful 5G trials going on nationwide, ROI models have begun to factor in less risk, which increases the project approval rate. Any time you have less risk and a more predictable deployment model, capex increases.”

One carrier, T-Mobile, has a “robust small cell program,” planning on deploying 25,000 small cells in the 18 to 24 months, according to Hollie Maldonado, site development manager, T-Mobile. She contrasted that number to the 20 years it took for the carrier to build out its current lineup of 60,000 macrosites.

Crown Castle, which as 50,000 small cell sites, is in the process of 5,000 more sites in the western market. “We are seeing enormous growth in small cells,” said Dan Schweizer, Crown Castle International government relations. “We are trying to build as many of them as we can.”

Kishore Raja, Boingo Wireless VP engineering, said there is an additional catalyst for small cell growth, noting they can now be deployed in two different ways on unlicensed spectrum as well as licensed, bringing with it new business models. “Now, there is a third avenue: the 150 megahertz at 3.5 GHz of spectrum in the Citizens Broadband Radio Service,” Raja said. “This opens up small cells to neutral host operators sharing spectrum with the incumbents.”

Opening up New Markets

The panelists discussed new markets that small cells bring to their companies. T-Mobile is currently deploying small cells to offload 4G LTE capacity from its macrosites, but the same sites will bring 5G services as close as possible to users. Crown Castle will use hyperdensification for offload of fiber data traffic and carrying mission critical Internet of Things data in an aesthetically pleasing manner. Small cells give Boingo Wireless an additional tool to solve issues in its current venues and also allow it to serve additional venues that before did not make economic sense. ExteNet uses small cells to densify the networks of carriers.

The challenge, according to Raja, is creating the user experience. “Whether the deployment is New Radio, millimeter wave, 4G, 4G advanced, Wi-Fi or any others, the goal is a clean, seamless user experience as they move from network to network,” he said. “Virtualization will be very key to managing these networks, both in terms of capex and opex.”

Opposition from Municipalities May Be a Drag on Small Cell Deployment

While the panelists agreed on the need for small cells to the future of the wireless industry, they also agreed that without streamlining of the municipal zoning processes the idea of deploying 100s of thousands of them seems impossible.

“We know one of the keys to achieving that goal is working with local governments. We have our work cut out for us,” Maldonado said. “We have launched a hefty site advocacy campaign in several markets to ensure that groundwork has been laid to execute quickly.”

Extenet is trying to drive down costs and streamline processes in the rights of way at a local level with the municipalities, according Greg Spraetz, SVP & GM enterprise solutions, ExteNet Systems.

Schweizer noted the work done by states and the FCC facilitating small cells. “Texas, Utah, Arizona, Colorado and New Mexico have all passed streamlining bills. Hawaii and California are pending,” he said. “I don’t believe we should have put small cells through zoning. There should be an agreed-upon form factor with the city, the industry has to do its part to build attractive sites that are compatible with existing residential areas and we should be able to pull a permit like any other right-of-way user.”

Recent rules adopted by the FCC, which exempted small cells from NEPA and SHPO regulations, will save the industry a lot of money and deployment time, according to Raja.

Schweizer cautioned streamlining regulations and legislation do not replace good relationships with municipalities. “There is no silver bullet,” he said. “Good state regulation does not obviate the need for government relations and being a trusted partner.”

J. Sharpe Smith
Senior Editor/eDigest
J. Sharpe Smith 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.

T-Mo/Sprint Merger Tower Math Acid Reflux

By Nick Del Deo, Contributing Author

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.

Chart 1

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.


T-Mobile Commits to 100 Percent Renewable Energy

Joining the likes of Nike, Google, Microsoft and Facebook, T-Mobile has committed to using 100 percent renewable electricity by 2021 as a member of RE100, a global initiative of more than 100 businesses committed to renewable electricity. T-Mobile also unveiled a second wind farm project.

“And it’s not just the right thing to do – it’s smart business! We expect to cut T-Mobile’s energy costs by around $100 million in the next 15 years thanks to this move. Imagine the awesome things we can do for our customers with that!” said John Legere, president and CEO at T-Mobile.

T-Mobile unveiled, for the first time today, that the company has finalized a contract for 160 miliwatts from Infinity Renewables’ Solomon Forks Wind Project in Kansas, with power generation slated to begin in early 2019. The Solomon Forks project marks T-Mobile’s second major wind power project. The first, the Red Forks Wind Power Project in Oklahoma, went online this past December. Combined, the two will generate 320 MWs for T-Mobile, enough to meet an estimated 60 percent of the carrier’s total energy needs nationwide.

Additionally, T-Mobile has committed $500,000 to RE100 and challenged Verizon and AT&T to match that investment. If one of them comes in, T-Mobile will double its investment to $1 million and if both come in it will triple it to $1.5 million.