Saturday, March 22, 2008

Sprint/Nextel & T-Mobile Merger in the Works?

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.

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posted by Steel in the Air @ 6:34 PM 0 comments

Saturday, July 07, 2007

T-Mobile offers WIFI/Cellular dual mode phone

According to a New York Times article on WIFI enabled cell phones (and many other articles of similar nature), T-Mobile is gearing up to offer a dual mode phone that lets the user "seamlessly" switch between a WIFI network in the home or office (read: anywhere that the phone has been previously configured to use that network with proper security).

A number of articles suggest that T-Mobile is doing this simply to save money developing new cell sites- which is definitely true. However, looking at the number of cell sites owned by each of the big four wireless providers (see our previous post on number of cell sites owned by each carrier), and if you look at the number of subscribers for each wireless carrier, it might seem more clear why T-Mobile finds it necessary to do so.

T-Mobile has a smaller coverage area than the other big three in the US. Furthermore, much of their spectrum is in the PCS 1900mHz range- which is not as effective as the cellular frequencies. T-Mobile is playing catchup- and rather than lose clients who find inferior coverage in their homes and offices where T-Mobile's coverage is weaker, they are displacing the cell traffic to the free WIFI networks. Given that much of the heavier data intensive use will come when the user is stationary (home/office) this also frees their network of high bandwidth traffic.

To T-Mobile's credit, the user has greater control over the quality of service (QOS) and can simply add coverage at their home even if the phone does not work well there.

The article points out that there are some issues. First, and most importantly, WIFI is unlicensed spectrum so the possibility of interference and poor signal coverage is high, especially in urban areas. Secondly, T-Mobile will in essence now be taking on the tech support role for setting up wireless networks correctly. Lastly, the article does not mention whether a call made on an open WIFI network will be protected from being overheard.

We believe this is a good move for T-Mobile- and that the other carriers will follow eventually. Giving the end user a higher level of service will reduce churn- especially for users who were on the edge of acceptable coverage in the past. Furthermore, it might allow T-Mobile to increase the number of users who purchase unlimited data plans.

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posted by Steel in the Air @ 7:47 AM 0 comments