So today, two seperate clients who are considering cell site lease buyouts from Wireless Capital Partners received emails from their WCP reps that has a cryptic message regarding Sprint/Nextel’s credit rating being downgraded to junk bond status.

The messages include an attachment of a news story about the downgrade. One goes on to say that there have been some amazing changes for WCP since they approached my clients first and that pricing leases is a “moving target”. The other doesn’t suggest or tell why the story was sent. Neither really states why they were sent at this time.

I surmise that WCP is using the article to scare landowners into selling with the implication that if it happens to the mighty Sprint/Nextel it can happen to the other carriers. Secondly, I assume that WCP will either reprice their cell tower lease purchase offers for Sprint/Nextel leases or discontinue offers altogether. (EDITOR’S NOTE- 6-1-08- Since writing this post, it has come to our attention that WCP has simply stopped purchasing Sprint/Nextel leases. Contrary to what was written above- WCP’s financing group simply felt that there was too much risk in owning more Sprint/Nextel leases in the WCP portfolio. WCP’s business model is based around spreading risk on their leases and the Sprint/Nextel leases increased that risk too much. WCP is working on acquiring alternative financing for Sprint Nextel leases.)

If you are a landowner that has an offer from WCP for a Sprint Nextel lease- don’t dispair. Contact Steel in the Air- because their are other companies that are still buying Sprint/Nextel leases. If you are concerned about your Sprint/Nextel lease as a result of this- remember that Sprint and Nextel has no value without its cell sites. So while there may be a risk of termination due to the merger and duplication of Sprint/Nextel cell sites- these sites still form the basis by which Sprint/Nextel service their subscribers. Without them, Sprint/Nextel will really be in trouble.

Steel in the Air, Inc. and the author are not affiliated with Wireless Capital Partners or Sprint/Nextel. If you reached this post while looking for Wireless Capital Partners- go to www. wireless capital. com (without spaces) or http://www.sprint.com/.

Analysts from Merrill Lynch suggested earlier this month that T-Mobile may be in a position to acquire Sprint Nextel. Here is our breakdown of reasons why we could see this happening and reasons why we can’t:

REASONS WHY SUCH A MERGER COULD OCCUR

1. The declining dollar: T-Mobile is owned by Deutche Telekom. With the euro’s increase in value relative to the dollar, the cost of acquiring Sprint/Nextel would be lessened.

2. 4th Generation Wireless: Sprint/Nextel’s WiMAX spectrum and development. It is no secret that T-Mobile is fourth in the race to 3rd generation wireless. While Sprint, AT&T, and Verizon have already implemented next generation technology on a majority of their urban sites, T-Mobile is in the midst of their UMTS overlay project. With less spectrum than the other carriers, T-Mobile had to bid heavily in the Advanced Wireless Services Auction before they could start this deployment. With Sprint/Nextel- T-Mobile gets to jump to 4th generation wireless services without acquiring more spectrum.

3. Spectrum Auction Participation: T-Mobile did not win any spectrum in the recent 700mhz auction. Perhaps because they won a good deal of spectrum in the AWS auction- but it is conceivable that they gained additional comfort knowing that they would have access to the 2.5GHz spectrum used by Sprint/Nextel for WiMAX.

4. Sprint Stock Price: Sprint’s stock valuation is pitiful. At $6/share, Sprint’s market cap is $19.3 billion. However, Sprint/Nextel’s assets are valued at over $60 billion. We believe Sprint’s stock has taken a beating that may be worse than deserved. Perhaps T-Mobile understands this as well.

5. Number One: A Sprint/Nextel/T-Mobile merger would yield 83 million subscribers- making it the largest carrier in the US. AT&T has 70 million with Verizon at 64 million.

6. Sprint Inactivity: Based upon our anecdotal evidence from clients who approach Steel in the Air, Inc to assist them on new lease negotiations for rooftop cell sites or tower sites, Sprint is not doing any new site development as yet this year. This could be an indication that a merger is in the works and Sprint/Nextel doesn’t want to expend capital on building new cell sites that will be duplicative to a T-Mobile site.

REASONS WHY SUCH A MERGER MIGHT NOT OCCUR

1. Foreign ownership: In 2000, when Deutche Telekom acquired Voicestream and re-badged it T-Mobile, there was regulatory and Congressional concern regarding a foreign company having ownership of a cellular network. This concern can only be greater if Deutche Telekom acquired Sprint/Nextel.

2. Antitrust: The FCC and DOJ might have anti-trust concerns regarding the merger of the 3rd and 4th largest carriers into the number one carrier. However, if the mergers of AT&T/Cingular and Sprint/Nextel and the FCC/DOJ’s failure to force significant divestitures in either merger are an indication, this merger could fly through. Steel in the Air has polled a few other experts- who seem to mostly believe that a merger between Sprint/Nextel/T-Mobile would be approved.

3. Technology Soup: T-Mobile operates a GSM network, Sprint a CDMA network, and Nextel an iDEN network. It is believed by some of us that Sprint/Nextel’s failure to smoothly integrate the two divergent networks is responsible for a large part of their current stock woes. The migration of all three networks would be a significantly difficult hurdle.

4. Sprint’s Pride: Regardless of where there stock is- Sprint most likely believes like I do that their issues are temporary. The market has been particularly unkind to Sprint’s missteps and failed to value Sprint/Nextel’s considerable spectrum holdings and the prospect of WiMAX.

In the end, perhaps the merger of Sprint/Nextel and T-Mobile is just intriguing supposition. However, if this merger was to occur, it would have dramatic impact on the tower industry and on cell site landowners.

Sprint has been contacting landowners recently with existing Sprint sites and asking to modify the current antenna installation. They propose adding 2 parabolic antennas to the site. When asked, they suggest that the additional equipment is used in “support of” their 4th generation WiMAX technology. Yet a careful review of the proposed lease amendment shows that they want to modify the current lease agreements so that Sprint “OR ANY OF ITS AFFILIATED ENTITIES, SUBLESSEES, ASSIGNS OR CUSTOMERS” can use the Site for installing equipment, antennas and microwave dishes, air conditioned shelters, ect.

Basically, Sprint wants unsuspecting landlords to sign these agreements not realizing that they have now authorized Sprint to sublease to virtually anyone. (I am a Sprint customer- perhaps I can get a sublease on one of their sites).

Personally, I find this type of negotiation misleading. Why represent that Sprint wants to add equipment if in fact, they simply intend to sublease to a third party? The answer is relatively easy- otherwise landowners would ask for more money.

Before you agree to an amendment like this or a proposal to add more antennas to your cell site, make sure you consult an attorney who understands wireless leases to counsel you on what rights you are giving up. If you need help evaluating the value of a Sprint lease amendment for additional antennas, contact Steel in the Air.

The first WiMAX networks are planned to start in less than a week. According to Eric Lin of PhoneScoop.com, Sprint Nextel will “soft launch” its so called XOHM WiMax network in the next few days. Lin quotes Bin Shen, VP of Sprint Nextel’s Product Management and Partnership Development. Shen says “Chicago, Washington DC and Baltimore will all go live at soft launch.” Sprint Nextel thus keeps their promise to have a live network by 2007, even if the launch is non-commercial. On the negative side, wireless ISP Clearwire has announced they will not continue to partner with Sprint Nextel to develop WiMAX networks. In dropping their participation, Clearwire cited the complexities associated with the Letter of Intent they signed in July, 2007. Sprint Nextel seems unphased by Clearwire’s decision, saying they remain fully committed to deploying WiMAX networks and developing services for those systems. What might those devices and services be?

Broadband network cards and laptops with WiMAX chips seem obvious products. Dual mode CDMA/WiMAX handsets are also predictable. During the days of the Clearwire partnership, consumer electronic products such as digital cameras and portable gaming devices were to have Intel made WiMAX chips built in. TiVo like hard drive equipment capable of storing full length movies seemed also possible, along with real time video conferencing hardware. But what about special purpose devices? One such product is Amazon’s book reader called Kindle. It accesses the net to download electronic book editions. Air time is bundled into the price of the e-book, so a customer is not directly billed for access. A digital photo service could act in the same way. Photos might go directly from a camera to a hosting or processing service that would recover its airtime costs by building them into the goods it sells. One could also provide Internet access by charging for each session. Aside from the Kindle, this new business model, the first test of open networks, has not been tried by other companies. The notable exception is OnStar, provided by General Motors.

OnStar is a communications, monitoring and tracking service. Among other things, OnStar can provide voice communications, air bag deployment notification, help in an emergency, vehicle diagnostic assessment, stolen car location assistance, and remote door unlock. GM bundles OnStar’s cost into the price of a vehicle, or it charges a monthly fee. The customer pays GM, therefore, for a service, and General Motors in turn pays airtime costs to a wireless carrier. As noted before, this business model has not caught on, save for telematic services to utilities providing gas pipeline and electrical systems monitoring. In those cases, a monthly fee is charged each company for information provided over cellular radio networks.

It will be interesting to see if Sprint Nextel will have the financial ability to build out their WiMAX networks. Toptechnews.com says WiMAX accounted for about $31 million in expenses and $73 million in investments during the third quarter. This for a company that in the most recent quarter lost $500 million in revenue over the last year. 337,000 subscribers were lost in the last quarter alone. WiMAX technology may be visionary, but will any carrier have the funding to make it work?