After almost two years of regulatory scrutiny, the T-Mobile/Sprint merger has officially been completed. Just in time to weather the recession caused by the coronavirus pandemic.
Accompanying the merger, the New T-Mobile announced that Mike Sievert will take the reins as CEO of T-Mobile from John Legere, who served as CEO of T-Mobile since 2012. Legere, who created a playful, combative culture, will be a tough act to follow. During his tenure, Legere turned T-Mobile around, disrupted the wireless industry and capturing 80 percent of the industry’s postpaid phone growth since 2013. Legere will continue as a member of the Board of Directors for the remainder of his current term.
“Everything that T-Mobile has accomplished is the result of his vision for what a different kind of wireless provider could be,” said Sievert in a prepared release. “John IS what the Un-carrier is all about: advocating for customers at every turn, forcing us to think differently and always driving for more. He has always pushed the boundaries of what’s possible and pushed us to do the same.
The New T-Mobile will increase its capacity by 14 times in six years through the merger and a planned investment of $40 billion into its network. The carrier promised the merger will enable synergies at least $43 billion. Sprint gives T-Mobile critical mid-band spectrum in the 2.5 GHz band for its 5G network.
“Now the New T-Mobile will focus on creating a much-needed transformational nationwide 5G network, driving innovation in the U.S. and bringing wireless access to people throughout the country,” Sievert said. “This quantum leap forward can only be achieved by using T-Mobile and Sprint’s combined low-, mid- and high-spectrum bands — and only the New T-Mobile will have the resources to do it quickly.”
The New T-Mobile promises customers will benefit from average 5G speeds up to eight times faster than current LTE in a few years and 15 times faster in the next six years. The carrier will provide 5G to 99 percent of the U.S. population average 5G speeds in excess of 100 Mbps, and 90 percent of rural Americans will receive average 5G speeds of 50 Mbps.
Wells Fargo Securities: New T-Mobile May Struggle in the Short Term
The New T-Mobile business model is exposed to subscription weakness in the near term as the economy goes into recession, because it is almost all-wireless and more dependent than the other carriers on sub growth to expand service revenues, according to Wells Fargo Securities. The firm forecasted downside risk scenarios pressuring service revenues by 1-2 percent and EBITDA by 2-4 percent as part of a stress test that assumed a 30-50 percent reduction in net postpaid subscription adds, and 50-100 bps lower EBITDA margins (driven by higher network opex).
“As the only wireless pure-play that is almost entirely reliant on subscription adds to drive service revenue growth, New TMUS’s (Sprint & TMUS) financials would be most impacted by our stress test,” wrote Jennifer Fritzsche, Wells Fargo senior analyst. “Our scenarios result in a ~1-2 percent impact to FY2020E PF service revenue 2-4 percent on consolidated EBITDA. Longer-term, however, T-Mobile may be the best positioned, given lack of exposure to secularly declining businesses like linear video and legacy enterprise wireline.”