The merged T-mobile US (TMUS) and Sprint can reach parity with AT&T Mobility (AT&T) and Verizon Wireless (VZW), at least in terms of capital expenditures (capex). That is an important metric because of the prodigious capital investment required to build and operate a state-of-the-art (read, 4G LTE & 5G) nationwide wireless network. For the past five years, AT&T and VZW each invested $8-10 billion a year in their networks. TMUS and Sprint each spend about half that level at $4-5 billion a year. By this reckoning, TMUS and Sprint have been followers for some time.
Through 1H19, both AT&T and VZW spent just under half of their planned full-year capex budget as they continue densifying their respective 4G LTE networks and are in the early stages of 5G deployments. Expect a steady capital spending ramp from both companies through the end of the year.
By contrast, TMUS is on a spending tear. Anticipating merger approval, TMUS spent $3.7 billion or 61 percent of its 2019 budget through the first six months. That figure is up 24 percent compared to the $3.0 billion spent in 1H18 as it continues to expand its 4G LTE reach and readies 5G deployments in 600 MHz and millimeter wave (mmW) bands. The company’s revised guidance indicates that it will come in at the high end of its $5.8-6.1 billion full-year 2019 capex range. Comparatively, Sprint has maintained a $1 billion quarterly run-rate through 1H19 and spent just 40 percent of its 2019 budget. The company likely will raise its quarterly capex through year-end. Combining capex budgets brings the merged company’s network investment levels on par with AT&T and VZW.
Both companies acknowledge the merger will give them the heft and capital resources needed to compete effectively with the top two. A customer tally is telling. As of 2Q19, TMUS would combine its 83 million subscribers with Sprint’s 54 million for a total base of 137 million connections. That stacks up well with VZW’s 118 million and AT&T’s 160 million which includes over 58 million connected devices such as vehicles and IoT sensors.
More importantly, both companies bring significant spectrum and infrastructure resources to the merger. TMUS has large bandwidth swaths in 600/700 MHz low-band, 1.9 GHz and AWS (1.7/2.1 GHz) mid-band and 24/28/39 GHz mmW high-band frequencies, operating across 65,000 macrocells and 24,000 small cells. Sprint contributes big blocks in 800 MHz low-band and 1.9/2.5 GHz mid-band frequencies along with over 40,000 macrocells and 32,000 small cells. The merged company will have a nationwide footprint and spectrum capacity for bolstering current 4G/LTE performance while rolling out 5G in markets across the country.
While AT&T and VZW stocks are widely held by shareholders with high expectations, TMUS and Sprint are backed by deep-pocketed owners in Germany’s Deutsche Telekom and Softbank of Japan, respectively, who can help the merged company through cash flow slowdowns. Plus, the merged company will be led by the flamboyant CEO John Legere who likes to give his conservative counterparts a run for their money.
One stipulation for merger approval is that TMUS and Sprint must divest 20,000 small cells along with chunks of spectrum and pre-paid customers to Dish Network under the regulators’ notion of jump-starting a competitive fourth national wireless network. But that’s another story!
John Celentano is Inside Towers’ Contributing Analyst. He can be reached at firstname.lastname@example.org.
By John Celentano for Inside Towers
August 7, 2019