Sprint's Dangerous Assumptions
John Zhang • 47 Comments
John Zhang • 47 Comments
Wed, Aug. 17, 1:32 PM
- Detailing its report on new merger chatter around Sprint (S -1.5%) and T-Mobile (TMUS +0.5%), Bloomberg notes that Masayoshi Son -- the mogul at the head of SoftBank (OTCPK:SFTBY -2.3%) who abandoned a merger bid before -- will likely try the combination again if he thinks a new head of the FCC is amenable.
- That agency head holds key power, with the threat of putting such a proposed deal into an administrative hearing, which would postpone action indefinitely. A similar threat caused Comcast to drop its proposed takeover of Time Warner Cable. Son has indicated he would legally challenge any Justice Dept. opposition.
- Shares of Sprint and T-Mobile made positive moves of 3% and 2.5% respectively in the span of a few minutes before pulling back.
- Son could pursue the argument that Sprint will never be a legitimate fourth competitor in the market alone, but that may not fly, says Public Knowledge's Gene Kimmelman. “You would need to see a pretty significant reversal of fortunes across both companies -- Sprint and T-Mobile -- for the antitrust enforcers to change their views ... You’d have to see a clear demonstration of a company in jeopardy.”
- A Trump administration, though, could mean "a whole new ball game" with companies like Sprint rolling the dice, Kimmelman says.
- “The rule of thumb is that Democratic administrations will allow an industry to consolidate down to four players, and Republicans will let an industry go down to three,” says analyst Roger Entner. “Masa has to hope that the next president’s name is Donald."
- Talks between the two companies are forbidden as of now, with the FCC's broadcast incentive spectrum auction going on (and looking more likely to run into 2017).
Wed, Aug. 17, 12:44 PM
- Sprint (NYSE:S), down nearly 3% on the day, made a midday spike back to the flat line on yet another resurgence of merger rumors -- though, just like that, the spike is gone and Sprint is off 1.8% again.
- Bloomberg is saying that Masayoshi Son of Sprint owner SoftBank (OTCPK:SFTBY) is still "holding out hope" to combine Sprint with T-Mobile (TMUS -0.2%) -- which also spiked into positive ground before an immediate pullback.
- Conventional wisdom has it that the previous outbreaks of Sprint/T-Mobile rumors were put to rest with no possibility of a combination at least until a new U.S. presidential administration.
Tue, Mar. 1, 9:38 AM
- T-Mobile (NASDAQ:TMUS) is up 1.2% in early going after Deutsche Telekom (OTCQX:DTEGY) reportedly put any sale of its U.S. arm on ice, with a U.S. election on the way and spectrum auction dead period dead ahead.
- Participants in the FCC's broadcast incentive airwaves auction, set to begin at the end of the month, won't be allowed to talk partnerships or mergers during bidding, which could last for months.
- The German giant will wait for a more favorable environment before looking at another sale.
- After a previous attempt to merge T-Mobile and Sprint (NYSE:S) went awry, consensus formed that the two would need to wait until a new post-Obama administration to give a tie-up another thought.
Thu, Jan. 7, 4:50 PM
- An afternoon rout helped push Sprint (NYSE:S) down 6.7% -- now just 8% over its 52-week low of $3.10 -- the opposite direction from T-Mobile (TMUS +1.2%), again today the only one of the big four wireless providers to gain.
- Shareholders might take heed of Bernstein's latest report on the area, which says that even with the interest floated by cable companies, satellite firms and foreign entrants, Sprint and T-Mobile are more likely to rekindle merger talks with each other than anyone else.
- Most observers have thought that after a failed run in 2014, any new merger talks would wait until a new presidential administration, and indeed: "The prospect of a Sprint/T-Mobile merger — the only transaction that can materially affect the mobile sector's structure, conduct, and performance — will remain an overhang throughout most of the year," says Bernstein's Paul de Sa.
- What's more, he writes, "We think major, irreversible strategic moves (for example, a massive network investment by Sprint or the sale of a majority stake of T-Mobile or Sprint to another owner, such as Dish Network (DISH -2.1%) or cable) is unlikely to occur" until there's more clarity about a possible merger between the two.
- Such a deal has "by far" the largest cost and revenue synergies of the possible transactions, he says.
Dec. 7, 2015, 6:47 PM
- A serious courtship between America's No. 3 and No. 4 wireless providers went sour in 2014 after the government made it clear it wanted four players, and since then merger speculation (particularly among suffering Sprint shareholders) has held that any new move wuold have to wait for a new administration.
- But what if the relationship could be rekindled earlier? Overtures toward wireless service from Comcast (CMCSA -0.6%), or other cable firms yet to express interest, could allow for a union between T-Mobile (TMUS +3.2%) and Sprint (S +2.8%) while maintaining the desired competitive players.
- Comcast started a process that would let it resell Verizon airwaves and acknowledged it was testing a service for a launch sometimes in the future. One catalyst could be a heavy bid into the March spectrum auction.
- "It seems clear that Sprint is playing for time, presumably to try again to merge with T-Mobile in 2017-18 under a new administration," says analyst Crag Moffett. "By then, Comcast will likely have bought spectrum in the TV broadcast auction, making it plausible to argue that a Sprint/T-Mobile combination can be called a five-to-four merger, not a four-to-three."
- Several outcomes are yet possible, though, and not all favor Sprint: Comcast could use an auction bid as a precursor for its own T-Mobile buyout; firms like Alphabet or Amazon.com could buy spectrum; or private investor Chamath Palihapitiya could succeed in an audacious plan to bid billions of dollars in the auction to create a new player called Rama.
- Previously: Comcast: Testing wireless service, but in no hurry to launch (Oct. 27 2015)
Sep. 22, 2015, 7:24 PM
- With most observers thinking any theoretical merger between T-Mobile (TMUS -1.1%) and Sprint (S +0.3%) would have to wait until a new U.S. administration (and John Legere saying "Oh yeah ... the only possible coming together of Sprint and T-Mobile is if we pick them up off the sidewalk"), analysts at Evercore say the two could combine network assets.
- It would be a sort of a merger, into a new company (a REIT in particular) that would hold their network resources. Bigger investments at lower cost would come, along with a speedier network once spectrum assets were blended.
- Given up, of course, would be the chance to differentiate, and snipe the rival over network power.
- Combined, the two control 255 MHz of spectrum, more than the 147 MHz at AT&T (T -0.9%) or the 116 MHz of Verizon (VZ -0.9%). A new "NetCo" would rent the network back to the two, as well as possibly others, and support MVNO customers.
- As a final entry in the "pro" column, the analysts note a combined network would make any future merger more headache-free.
Aug. 11, 2015, 1:54 PM
- Shenandoah Telecommunications (SHEN +21.2%) and NTELOS Holdings (NTLS +23%) are both up sharply in the wake of their news that Shentel is buying out NTELOS in a $640M deal.
- In a conference call to discuss the deal, Shentel CEO Chris French pointed to a combined network that covers 4.3M points of presence and 1M subscribers, essentially doubling Shentel's POPs, revenue and OIBDA.
- The deal's got mildly complicated terms as a three-way transaction ("win-win-win") with Shentel affiliate partner Sprint (NYSE:S), who will compensate Shentel to the tune of $252M in spectrum management fees (to be received in full within 5-6 years) and convert nTelos-brand customers to Sprint-branded, as well as take over NTELOS spectrum.
- As for Sprint's coming to the table to make it happen: "I think it really came down to economics on both sides," said COO Earle MacKenzie. Sprint is "going to save the dollars that they spent or would be spending to buy the wholesale usage from nTelos and, you know, we were able to provide a network. We also were committed to spending additional capex there which will reduce their roaming expenses to others and provided a great return for our shareholders."
- Shentel says it will complete a 4G LTE upgrade where NTELOS had a "good head start."
- Meanwhile, FBR & Co. upgraded Shentel to Outperform, from Market Perform. The analysts raised the price target to $40, from $33; that's 10.9% upside from yesterday's close, though shares now trade at $43.70.
- Previously: NTELOS up 20% on $640M buyout by Shentel (Aug. 10 2015)
Aug. 10, 2015, 5:14 PM
- NTELOS Holdings (NASDAQ:NTLS) is up 20.1% after hours as it says it's to be acquired by Shenandoah Telecommunications (NASDAQ:SHEN) in an all-cash deal of about $640M, including net debt.
- The deal -- the subject of rumors before -- means NTELOS shareholders will get $9.25/share (about $208M in cash) and Shentel will take on net debt of $431M.
- Shentel correspondingly has expanded its affiliate relationship with Sprint (NYSE:S), which will shutter the "nTelos" brand and make the company's customers into Sprint-brand customers.
- The move is a "liquidity event at an attractive premium," says NTELOS CEO Rod Dir.
- Sprint shares gained 14% earlier today, to rise to their highest point in a month.
- Previously: NTELOS down 15%, gives back takeover-rumor gains (Jun. 09 2015)
- Previously: NTELOS up 19.7% on chatter Shentel could pay near-50% premium in buyout (May. 13 2015)
Jul. 8, 2015, 7:25 PM
- On a down day for U.S. markets at large and the sector in particular, Sprint (NYSE:S) still led telecom decliners, -8.3% (its biggest one-day drop in eight months) on a day where NYSE trading was interrupted for more than three hours.
- Analyst Craig Moffett thinks the government may take a different stance than it did before on a merger between Sprint and T-Mobile (NYSE:TMUS) -- if Sprint "really is in severe financial distress, as we think they will be within a relatively short period of time."
- A Sprint/T-Mobile tie-up, though, wouldn't happen until after the next presidential election, if at all, he said.
- Asked about merger talk between T-Mobile and Dish Network (NASDAQ:DISH), meanwhile, Moffett thinks that's "unlikely" and "not about the business synergy between two businesses."
- "Although it was touted as Dish buying T-Mobile, it would really be T-Mobile buying Dish's spectrum through a complicated transaction."
- This spring, Moffett has pointed to cash burn in saying that if T-Mobile goes to another acquirer, "Sprint's in a world of hurt" and running out of good options. "At the current rate of cash burn, the company will run out of cash in a year."
- Previously: T-Mobile and Dish Network: Other options, other suitors (Jun. 12 2015)
Jun. 9, 2015, 9:33 AM
- With merger talks ongoing between T-Mobile (NYSE:TMUS) and Dish Network (NASDAQ:DISH), Timotheus Höttges, CEO of Deutsche Telekom (OTCQX:DTEGY) -- T-Mobile's controlling shareholder -- is reportedly more interested in merging T-Mobile spectrum (TMUS -1.2%) with Sprint's (S +1.1%) than in the Dish combo, The New York Post reports.
- The stance is centered in the idea of creating a valuable combination that would be more appealing for a sale to Comcast (NASDAQ:CMCSA), sources told the paper. Adding Dish Network to T-Mobile makes more sense in the future, but it would kill the chance of a sale to Comcast on regulatory concerns, the sources paraphrased Höttges as saying.
- There's no word on how he feels about regulatory resistance to combining with Sprint (which reportedly killed such a merger last year).
- He reportedly told investors at last week's RBC Capital Markets road show that the Sprint combination would create huge value in teaming up when the broadcast incentive spectrum auction begins in early 2016. Sprint and Dish Network both have swaths of spectrum that would help T-Mobile fill in gaps.
- Previously: Telecom consolidation game may force Sprint's hand (Jun. 05 2015)
- Previously: Dish Network, T-Mobile up on report of merger talk; Sprint slips (Jun. 04 2015)
Jun. 5, 2015, 8:50 PM
- With T-Mobile and Dish Network talking about a tie-up that many agree makes sense, what about Sprint (S -0.8%), the struggling provider who's set to drop to fourth place in customer base?
- T-Mobile and Dish could take advantage of Dish's large spectrum holdings to amp up the wireless network and add a growth engine to a satellite business in decline. AT&T is already pursuing its own satellite combination, with DirecTV. Verizon's moving into mobile video, but it will need more spectrum sooner or later.
- Sprint, for its part, has large spectrum holdings but has had trouble building it out and holding on to customers. And with a cash burn problem, "it's running out of good options," says industry analyst Craig Moffett.
- Sprint could try again to get T-Mobile for itself. That idea fell apart before on regulatory concerns, but will the climate have changed (or will it if the two wait until after the 2016 presidential election)?
- If T-Mobile goes to Dish or another acquirer -- while Softbank (OTCPK:SFTBY -0.2%) invested in Sprint mainly to tie it to T-Mobile -- "Sprint's in a world of hurt," says Moffett.
- All options might be on the table: Aside from going for T-Mobile, there's trying to elbow it aside to partner with Dish itself; joining up with a more merger-shy Comcast; or selling some of its spectrum haul for cash it may soon need.
- Previously: Sprint CEO: We'll have best or second-best network in two years (May. 27 2015)
- Previously: Sprint network: No need to buy spectrum in auction, CFO says (May. 19 2015)
- Previously: Sprint: Amid network investment, cash burn back in focus (May. 06 2015)
Jun. 4, 2015, 10:40 AM
- Dish Network (DISH +5.9%) and T-Mobile (TMUS +4.6%) are on the rise this morning -- and Sprint (NYSE:S) is down 4.2% -- in the wake of reports that Dish and T-Mobile are talking merger.
- It's not the first time the two have been linked by observers due to strategic sense: T-Mobile needs spectrum and Dish Network has it, and Dish needs growth and broadband service that T-Mobile could provide as AT&T and DirecTV near the closing of their merger. (Though the broadband isn't a perfect fit.)
- T-Mobile has been amassing wireless spectrum, and while Dish's Charlie Ergen has been circumspect as recently as this week about what the company would do with it, one thing he's made clear is that the company didn't plan to start a wireless network from scratch.
- A deal may take some time in coming, in part because of its size -- both companies have $30B-plus market caps -- and the fact that the FCC prohibits strategic talks during spectrum auctions, leaving a window before the broadcast incentive auction for discussions.
- Sprint, meanwhile, is trading down on fears that it could be left out in the cold, having a potential merger with T-Mobile dematerialize last year, and subscriber momentum that is likely to see it passed by T-Mo to fall to the fourth-largest carrier in the U.S., with a cash burn problem to boot.
Jun. 2, 2015, 6:46 PM
- Mogul John Malone floated an interesting idea today: Forget Sprint and T-Mobile -- the wireless industry could get its third major alternative to Verizon and AT&T (NYSE:T) with the merger of Charter Communications (CHTR -1.6%) and Time Warner Cable (TWC -0.9%).
- Malone was speaking at his various Liberty companies' annual meetings and noted that in 2012, the cable consortium SpectrumCo got an option to participate in a wireless MVNO service with Verizon (NYSE:VZ) after the wireless firm bought $3.9B in frequencies.
- Charter wasn't in SpectrumCo then, but merger partners TWC and Bright House are. “The concept that Comcast, a greatly enlarged Charter and Cox could together offer a WiFi-optimized connectivity service with a default to a Verizon MVNO is an interesting concept," Malone said.
- He thinks "there's very little dirty underwear" left to be found in a regulatory review of Charter-TWC after the past year's scrutiny.
- Also of interest regarding Charter capex and the dividend: “Everybody's going to say, ‘Oh he’s spending too much capital,’ but I think the end result with be worth it ... To a large degree we’re betting on Tom Rutledge and his team to wake up a sleepy cable company that was treading water in all honesty for a while and trying to satisfy shareholder pressures with buybacks and dividends as opposed to putting the money into having a competitive service offering.”
- Malone company shares today: LMCA -0.1%; LMCB flat; LMCK flat; LTRPA -0.9%; LTRPB +2.2%; QVCA +0.8%; LBRDA +0.1%; OTCQB:LBRDB flat; LBRDK -0.1%.
Mar. 27, 2015, 8:58 PM
- Glenn Lurie, CEO of AT&T Mobility (NYSE:T), says he's not worried about the outcome if Sprint (NYSE:S) and T-Mobile (NYSE:TMUS) -- third and fourth in the U.S. wireless market behind AT&T and Verizon (NYSE:VZ) -- decide to merge.
- "We are a very, very different company than the other three," he tells FierceWireless. "So whatever happens with them, I'm not really that concerned. I'm concerned about how we execute and how we operate."
- His No. 1 goal, Lurie says, is to reduce churn and preserve the company's current subscribers in order to upsell other services.
- Chatter continues to suggest that Sprint and T-Mobile may have to think about combining to achieve competitive scale, and in the meantime they're firing salvos in a price war that Lurie says AT&T won't join: "This industry is not commoditized at all."
- Previously: Goldman upgrades T-Mobile; DT reiterates merger wish (Jan. 20 2015)
Feb. 3, 2015, 2:24 AM
- A new Bloomberg report suggests that Amazon (NASDAQ:AMZN) has discussed acquiring some RadioShack (NYSE:RSH) locations, joining other potential bidders, including Sprint (NYSE:S) and investment group Brookstone.
- Amazon would use the stores as showcases for its hardware, as well as potential pickup and drop-off centers for online customers.
- The NYSE suspended trading of RadioShack's shares yesterday, after it failed to have an average market value of at least $50M for 30 straight days.
Feb. 2, 2015, 1:45 PM
- RadioShack (RSH -20.5%) might sell half of its stores to Sprint (S -0.3%) as part of a bankruptcy arrangement, reports Bloomberg.
- Sources say the remainder of the electronics chain's stores will be closed under the proposed deal.
- A co-branding partnership with Sprint or a last-minute acquisition of RadioShack by a new player are also scenarios which are still possible.
- Previously: Standard General likely act as lead bidder for RadioShack (Feb. 02 2015)