Combined company plans $40 billion in network investment
Sprint and T-Mobile US are gearing up for another attempt to join forces, with an eye on massive investment in 5G and a “mother of all networks” that will compete with wireline broadband across the country, including in rural markets.
The merger was announced Sunday, accompanied by a conference call where executives from both companies tag-teamed each other to outline their plans for the $146 billion transaction, which values Sprint at $59 billion.
Fun times ahead #5GForAll @sprint @TMobile pic.twitter.com/IQNd85BS11
— Marcelo Claure (@marceloclaure) April 29, 2018
Here are some of the key takeaways from the call:
–Big focus on 5G. From the merger website (Allfor5G.com) and hashtag (#5GforAll) to network plans, to regulatory rationale for the transaction, much of the discussion focused on moving the U.S. further along the path to 5G. Sprint and T-Mobile US executives emphasized the capacity of a combined network that can utilize both Sprint’s 2.5 GHz holdings as well as T-Mobile US’ spectrum at 600 MHz, and held up their vision as the way for the U.S. to “take its rightful place” as a global 5G leader, in the words of T-Mobile US CEO John Legere.
He went on to claim that based on millimeter wave spectrum propagation characteristics, that 6 million sites — at $250,000 each — would be needed to build nationwide 5G coverage in mmWave, or about $1.5 trillion. “Even the giants in our space don’t have that kind of cash,” Legere scoffed.
Comparatively, the new T-Mo will put $40 billion into its network over the next three years, executives said. The combined network will be “anchored on the T-Mobile network,” according to T-Mo COO Mike Sievert, who will serve as COO and president of the combined company. It will have an estimated 85,000 macro cell sites and about 50,000 small cells, with customer migrations taking place within three years as CDMA customers are switched over to LTE. Neville Ray, T-Mobile US CTO, said that about 35,000 sites will ultimately be decommissioned in order to cut costs, with 10,000 new sites created; the two companies expect to see about $26 billion in merger synergies from running a single network, with about 93% of those coming from reduced operating expenses. Ray said that the two carriers are “very confident” that they can achieve network integration and migration within three years. The migration is aided by the fact that many devices (such as recent iPhones) used by Sprint customers will also work on T-Mobile US’ network.
Executives from both carriers said that they expect to continue with their projected network spend as planned until the merger is approved. As part of the deal, the two carriers also put together a four-year roaming agreement that will stay in place even if the merger transaction goes bust.
-Rural ramp-up. There was much love for the rural consumer on the call, particularly from Legere, who spoke of building a network that would compete head-to-head with wired broadband to offer choice in rural and underserved areas — but, notably, was still fundamentally a mobile network. Executives spoke of achieving 450 Mbps nationwide average speeds, which would be a 15x increase from T-Mobile US’ average 30 Mbps speeds. Other aspects in which rural customers were specifically addressed included the expansion of retail stores and jobs, including U.S. call centers.
-Cord-cutting for broadband services. Legere honed in on cord-cutting as the future for internet services, repeating his often-heard perspective that all content is moving to the internet and the internet is moving to mobile. He said that the number of people who use only a wireless connection for both internet and voice services is growing, and that the combined company’s network capacity and speed will enable more customers to rely only on wireless connectivity as their household’s connection.
–Emphasis on a “jobs positive” merger. Job creation was another major theme of executives’ remarks. Sprint and T-Mobile US have a combined workforce of around 240,000 globally, according to Legere and other executives; of those, around 200,000 are in the U.S., and 80,000 are full-time employees. The new company expects to have more employees when combined, than their total employee bases prior to the merger, due to expansion of retail stores to rural markets, more call centers, and in serving enterprises and new markets. Sievert said that the new T-Mobile plans to grow its workforce from the first year on, giving the specific example of plans to hire around 1,000 new positions in its enterprise group within the first 18 months. The combined company will retain both headquarters — T-Mobile US’ in Seattle, and Sprint’s in Overland Park, Kansas.
-Regulatory hurdles ahead. Legere said that the two companies are “hoping for a rapid approval process.” He added that he and Claure called Federal Communications Commission Chairman Ajit Pai as soon as the merger was made public to let him know, and spoke briefly with all of the current FCC members. “All of the commissioners have expressed a desire to learn more and to judge what we’re bringing forth on its merits,” Legere said. He added that the two CEOs will shortly head to Washington, D.C. to provide federal regulators and policy makers with more information on the merger. The transaction is expected to close in the first half of 2019.
