The T-Mobile–Sprint Merger: Key Updates - Market Realist
Posted on September 21st, 2018
By Andrew Smith Sep 20, 2018 | 12:31 PM
Last week, the FCC (Federal Communications Commission) announced that it needs more time to review the proposed merger between T-Mobile (TMUS) and Sprint (S). They are the third- and fourth-largest wireless service providers in the United States.
During the Goldman Sachs Communacopia Conference on September 14, Michel Combes, Sprint’s CEO, was asked how the company is preparing for its merger with T-Mobile. Combes said, “We have decided to divide to concur with Marcelo. I am, as CEO, mainly focused on operational executions so to keep the right momentum for the company from a commercial and operational point of view because that’s what matters in this type of circumstance."
Sprint’s executive chairman Marcelo Claure is working on the regulatory side of the merger. Sprint is also working closely with T-Mobile to prepare for the potential merger. Combes highlighted that the company is seeing positive stances from regulatory bodies and continues to expect that it will close the transaction in the first half of 2019.
History of attempts to merge T-Mobile and Sprint
This is the third time in the last four years that T-Mobile and Sprint have attempted to merge. Merger discussions collapsed last year in November due to the tug-of-war over the ownership of the combined entity. The first round of merger talks in 2014 ended due to regulatory hurdles.
However, both T-Mobile and Sprint have a common aim: to come closer to their larger competitors AT&T (T) and Verizon (VZ). In the second quarter, T-Mobile, Verizon, and AT&T gained 686,000, 199,000, and 46,000 postpaid phone net customers, respectively. Sprint gained 87,000.
Sprint plans to acquire additional spectrum for 5G
The FCC (Federal Communications Commission) is planning to run two spectrum auctions beginning in November. The spectrum is anticipated to help mobile operators accelerate the development of 5G (fifth-generation) networks.
During the Goldman Sachs Communacopia Conference on September 14, Michel Combes, Sprint’s (S) CEO, spoke about the company’s plans before the upcoming US spectrum auctions. He said the company has a strong spectrum portfolio in 2.5 GHz (gigahertz). While maintaining a pragmatic approach, the company is open to considering the millimeter wave spectrum auctions beginning in November.
Combes highlighted that the “FCC has green lighted us in our ability to bid in those auctions if we elect to do so." He added that “we can leverage the cash that we have on balance sheet and/or raise additional money if needed in order to go for these auctions depending on what we will think is needed for the company moving forward."
AT&T (T) and T-Mobile (TMUS), which expect to start offering 5G services nationally over the next few years, have hinted that they would participate in the upcoming FCC spectrum auctions.
Sprint’s peer comparison of total revenue
Wireless operators are expecting 5G services to expand their revenue opportunities. Sprint’s revenue fell ~0.4% YoY (year-over-year) to $8.1 billion in the first quarter of fiscal 2018,1 but it’s still well above the consensus estimate of $8 billion.
By comparison, Verizon’s (VZ) revenue rose ~5.4% YoY to $32.2 billion in the second quarter, and T-Mobile’s rose ~3.5% YoY to $10.6 billion. AT&T reported consolidated revenue of $39 billion in the second quarter, a ~2.1% reduction YoY.