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Proposed Sprint/T-Mo Merger Top Story for 2014

Wireless carrier consolidation and the accompanied jitters it inspires will be one of the top stories again in 2014.

As we headed in to the holiday break, the Wall Street Journal reported on Dec. 13 that Sprint was considering a merger with T-Mobile US, which set the industry into full speculation mode.

If such a merger would occur, Jennifer M. Fritzsche, senior analyst, Wells Fargo wrote, it would have the biggest impact on Crown Castle International, which has an overlap between T-Mobile US and Sprint totaling 8,000 sites, which accounts for 20 percent of its U.S. portfolio and 10 percent of its consolidated site rental revenues, according to Fritzsche.  SBA Communications would be the least affected with an overlap of 2,000 sites or 13 percent of its domestic portfolio. American Tower has an overlap on 5,500 sites, which 20 percent of its domestic portfolio, but it accounts for less than 5 percent of its revenue.

Average remaining term of leases on affected sites at all of the big three tower companies is seven years.

“We would be affected very little by the combo of Sprint and T-Mobile US in terms of existing overlap, however it would affect our growth model and likely pricing on exit as I think initially the entire market would trade down,” said Ronald G. Bizick, II, CEO, Tarpon Towers.

The Nikkei Asian Review reported on Dec. 25 that Sprint’s owner, SoftBank, was in the final stages of talks with Deutsche Telekom to purchase the majority of shares in T-Mobile US for $19 billion. SoftBank has approached Credit Suisse, Mizuho Bank, Goldman Sachs and Deutsche Bank, looking for funding, according to Bloomberg News.

And then there are the antitrust and competition concerns of two major carriers merging. Not forgotten is AT&T’s $39 billion merger proposal for T-Mobile US in 2011 that was nixed by the Department of Justice. Worries caused by that deal stifled growth in cell site development for the better part of that year.

A Sprint/T-Mobile US merger would create a super carrier with 100 million subs, making it competitive with the current duopoly, AT&T and Verizon. The combo would also make Softbank the second largest carrier in the world behind China Mobile. Whether the deal goes through depends in part on whether it is seen by the FCC and DoJ as improving competition or harming it.

Another issue might be timing of the merger, according to Mobile Ecosystem analyst Mark Lowenstein. “[Softbank’s] Masayoshi Son’s already uphill battle [to merge with T-Mobile US] has become progressively steeper given T-Mobile’s 2013 trifecta of successful Metro integration/expansion, rapid LTE deployment, and success with its ‘un-carrier’ strategy,” he wrote. “AT&T’s planned acquisition of Leap will put further pressure on Sprint MVNOs. Plus, the incentive auctions have been delayed into 2015, pushing commercial reality of additional sub-2.5 GHz spectrum for Sprint even further out.”

To make matters even more complicated, Charlie Ergen, the driver of much of last year’s merger melodramas, has decided he may want to poke in his nose. Reuters reported on Dec. 18 that DISH Network was considering its own bid for T-Mobile US, pitting it against Sprint, the carrier it used to want to buy.

Sprint Says Goodbye to Nextel, Hello to Softbank

Sprint officially turned off the Nextel network at 12:01 a.m. on June 30. The network, which had caused so much rage, went quietly into that good night as Sprint Senior VP, Networks, Bob Azzi sent a series of computer codes across the 20,000 remaining towers. Power has been cut to the Nextel network, which still had 1.3 million users, and salvage efforts have begun, recycling the tower materials.

In contrast, five days earlier, Sprint Nextel shareholders overwhelming approved the merger agreement with SoftBank, which spent $16.64 billion for a 78 percent share of the company. And in the span of less than a week Sprint cut loose from Nextel, which had served as anchor, and hitched itself to the company of its future, Softbank.

Nextel was launched 25 years years ago when two Washington lawyers, Morgan O’Brien and Brian McAuley, began amassing frequencies in the 800-MHz band used for two-way radio dispatch. The resulting company, known as FleetCall, would sound the death knell of a service known as specialized mobile radio (SMR) buying up the vast majority of the companies that provided service.

SMR was created by the FCC for site-by-site, licensed, two-way radio companies to serve as third-party providers of trunked dispatch service, but in response to FleetCall’s petitions for blanket licenses in metro areas, the FCC changed the site-by-site licenses to geographic area licenses, which allowed the channels to be used like a cellular system. It was a bellwether for the FCC’s expansion of cellular into other radio services.

FleetCall became Nextel Communications and marketed push-to-talk and direct-dial voice service over Motorola’s iDEN digital radio network to fleets and dispatch customers. Eventually, it became a cellular carrier that marketed to consumers.

Nextel, which had 20 million subscribers, merged with Sprint in 2005 in a transaction worth $36 billion. It is ranked by CIO magazine as one of the worst seven tech mergers in history because of culture clashes between the companies and difficulty fusing Sprint’s CDMA and Nextel’s iDEN networks, which eventually led to the end of the Nextel network last week.

SoftBank’s Investment in Sprint Should Include ClearWire — AnalysysMason

SoftBank’s investment in Sprint is a good start, but regaining control of Clearwire is likely to be the game changer for the US market, according to Principle Analyst, AnalysysMason Chris Nicoll.

In a recent article Nicoll discussed the impact of Japanese telecommunications investment firm and operator SoftBank’s $20.1 billion investment in Sprint. He said, while the promised $8 billion in cash will aid with the rapid completion of the Network Vision network and the deployment of LTE service, it will not be enough to move Sprint out of its third place position.

“An infusion of capital will not guarantee Sprint’s success,” Nicoll wrote. “[Sprint] is a competitive number three, but it must complete its Network Vision consolidation project to address the spectrum refarming and technology issues of pulling its iDen, CDMA and the Clearwire WiMAX networks together and it needs to accelerate its LTE deployment.”

In addition to competing with the “Big Two,” Sprint faces renewed pressure from T-Mobile USA, which, along with the $3 billion received from AT&T from the failed merger, has received spectrum in a swap with Verizon Wireless and looks to close a merger soon with MetroPCS. “While it is easy for SoftBank/Sprint to set its sights on market leadership, losing track of T-Mobile is not advised,” Nicoll wrote.

Even with the proliferation of LTE technology, there is still a dearth of high-speed networks. According to AnalysysMason tests, U.S. LTE networks are reaching maximum speeds of 50 Mbps, but are more commonly operating at 8 Mbps to 16 Mbps. Filling that need may be the key to success for Sprint, Nicoll noted.

If Sprint took control of Clearwire it could distinguish itself from the carrier field as the only true 100 Mbps operator, according to Nicoll, using Clearwire’s 2.5 GHz spectrum, TD-LTE technology and SoftBank’s  network expertise.

“SoftBank will need to take another big step to change the dynamics of the U.S. 4G market in its favour,” Nicoll wrote. “We suggest that Clearwire’s spectrum could provide the key that could really unlock growth opportunities for SoftBank in the United States.”

The increased speed will help Sprint compete in the market, where it is three years behind Verizon Wireless in deploying LTE. In total, the carrier needs to add 40 million subscribers, Nicoll wrote.