|By Business Wire||
|June 10, 2014 02:41 PM EDT||
A key factor in determining the long-term success of a potential Sprint Corp./T-Mobile USA merger will be the combined company's ability to produce a wireless network on par with the industry leaders in terms of coverage, density and overall network quality, according to Fitch Ratings.
Sprint Corp. and T-Mobile USA are reportedly nearing a transaction in which Sprint will acquire T-Mobile for approximately $32 billion. The combined companies would be of comparable size to Verizon and AT&T from a subscriber point of view, thus providing the necessary scale for improved operational efficiency and profitability to better sustain competition over the long term.
A Sprint/T-Mobile union would improve the network densification required for a higher-speed wireless offering, but would also likely add further integration challenges to Sprint's already lengthy network migration plans, Fitch believes. Sprint's poor operational performance in the past, combined with a lack of capital investment and aging infrastructure, resulted in a growing competitive disadvantage as network quality and speed lagged the industry, particularly as Verizon and AT&T accelerated deployment of 4G services.
Recent network initiatives to improve Sprint's competitive position and 4G service levels has been slow and resulted in elevated churn levels due to the significant network disturbances related to the modernization project. Further capital investments to leverage Sprint's high band 2.5 GHz spectrum advantage will require at least another couple of years as Sprint attempts to improve its national service offering to the level of its peers.
Additional challenges persist. A combination of the two companies would require a regulatory review process with strong potential for litigation, as well as an extensive integration period. T-Mobile carved out a compelling niche in the marketplace during the past year with its "un-carrier" strategy that has resonated with consumers and would be the stronger brand to leverage going forward. Sprint Chairman Masayoshi Son envisions a combined company that could eventually go head-to-head for wired home broadband services, although given the magnitude of such a plan, timing is uncertain. As such, Fitch believes that under parent company Softbank's direction, the combined entity would need to substantially improve the execution of future strategic initiatives to compete more effectively against Verizon and AT&T.
Regulatory approval remains a substantial hurdle for this potential transaction. The FCC and DOJ have made explicit comments regarding their desire to maintain a wireless marketplace with four operators as fewer competitors could result in increased risk of higher prices and decreased innovation. Thus any transaction would be judged on the merits of whether the public's best interests are served and if material antitrust elements are present.
Sprint's chairman has argued that the combination would be an effective counterweight against the growing size of Verizon, AT&T and Comcast that has been bolstered through continued consolidation. Both AT&T and Comcast are attempting to amass more scale with $40+ billion merger reviews before the FCC and DOJ. A combination of Sprint and T-Mobile would result in a direct competitive overlap in a concentrated wireless market. However, it may be unsustainable for the third and fourth wireless operators to remain independent over the longer term as the bulk of the wireless industry revenues and cash flows are concentrated between two much larger players.
Predicting an outcome of a regulatory review for a potential Sprint and T-Mobile combination is difficult given the current regulatory climate. However, regulatory approval of a Sprint/T-Mobile merger would likely require substantial concessions and related divestitures to address public interest concerns and antitrust issues. These could include material 2.5 GHz spectrum divestitures, a substantial commitment to meaningfully participate in the broadcast TV auction, attractive 4G wholesale service commitments, further obligations to support rural partnerships and timeline/milestone dates associated with market deployments targeting home wireless broadband service.
The impact of a potential T-Mobile acquisition on Sprint's pro forma credit profile depends on numerous factors, including but not limited to the overall transaction funding strategy, incremental investment in Sprint by Softbank and anticipated cost synergies. Fitch's working case assumes an equity purchase price of $40 per share for a transaction value of approximately $32.1 billion. Fitch assumes the transaction is funded with a mix of Sprint common stock (50% of transaction value), no incremental investment by Softbank and approximately $16.1 billion of incremental debt issued by Sprint. In this case Fitch estimates that Softbank's pro forma ownership of Sprint would dilute to approximately 57% from 81%. Additionally a modest $2 billion in annual cost synergies is assumed in the base case.
Fitch expects Sprint, as it exists today, to leverage cost reduction efforts that will lead to margin expansion and a stronger overall financial profile. Leverage peaked at 6.1x during 2013 and Fitch anticipates leverage will decline to the low 5x range by year-end 2014. In Fitch's view a potential T-Mobile acquisition could likely delay the anticipated recovery of Sprint's credit profile.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Information technology (IT) advances are transforming the way we innovate in business, thereby disrupting the old guard and their predictable status-quo. It’s creating global market turbulence. Industries are converging, and new opportunities and threats are emerging, like never before. So, how are savvy chief information officers (CIOs) leading this transition? Back in 2015, the IBM Institute for Business Value conducted a market study that included the findings from over 1,800 CIO interviews ...
Feb. 24, 2017 01:15 AM EST Reads: 1,881
IoT is at the core or many Digital Transformation initiatives with the goal of re-inventing a company's business model. We all agree that collecting relevant IoT data will result in massive amounts of data needing to be stored. However, with the rapid development of IoT devices and ongoing business model transformation, we are not able to predict the volume and growth of IoT data. And with the lack of IoT history, traditional methods of IT and infrastructure planning based on the past do not app...
Feb. 24, 2017 01:00 AM EST Reads: 1,873
All organizations that did not originate this moment have a pre-existing culture as well as legacy technology and processes that can be more or less amenable to DevOps implementation. That organizational culture is influenced by the personalities and management styles of Executive Management, the wider culture in which the organization is situated, and the personalities of key team members at all levels of the organization. This culture and entrenched interests usually throw a wrench in the work...
Feb. 24, 2017 01:00 AM EST Reads: 2,519
Niagara Networks exhibited at the 19th International Cloud Expo, which took place at the Santa Clara Convention Center in Santa Clara, CA, in November 2016. Niagara Networks offers the highest port-density systems, and the most complete Next-Generation Network Visibility systems including Network Packet Brokers, Bypass Switches, and Network TAPs.
Feb. 24, 2017 12:45 AM EST Reads: 955
WebRTC services have already permeated corporate communications in the form of videoconferencing solutions. However, WebRTC has the potential of going beyond and catalyzing a new class of services providing more than calls with capabilities such as mass-scale real-time media broadcasting, enriched and augmented video, person-to-machine and machine-to-machine communications. In his session at @ThingsExpo, Luis Lopez, CEO of Kurento, introduced the technologies required for implementing these idea...
Feb. 23, 2017 11:30 PM EST Reads: 6,284
Why do your mobile transformations need to happen today? Mobile is the strategy that enterprise transformation centers on to drive customer engagement. In his general session at @ThingsExpo, Roger Woods, Director, Mobile Product & Strategy – Adobe Marketing Cloud, covered key IoT and mobile trends that are forcing mobile transformation, key components of a solid mobile strategy and explored how brands are effectively driving mobile change throughout the enterprise.
Feb. 23, 2017 11:00 PM EST Reads: 7,005
Apache Hadoop is emerging as a distributed platform for handling large and fast incoming streams of data. Predictive maintenance, supply chain optimization, and Internet-of-Things analysis are examples where Hadoop provides the scalable storage, processing, and analytics platform to gain meaningful insights from granular data that is typically only valuable from a large-scale, aggregate view. One architecture useful for capturing and analyzing streaming data is the Lambda Architecture, represent...
Feb. 23, 2017 10:00 PM EST Reads: 4,591
SYS-CON Events announced today that delaPlex will exhibit at SYS-CON's @CloudExpo, which will take place on June 6-8, 2017, at the Javits Center in New York City, NY. delaPlex pioneered Software Development as a Service (SDaaS), which provides scalable resources to build, test, and deploy software. It’s a fast and more reliable way to develop a new product or expand your in-house team.
Feb. 23, 2017 09:15 PM EST Reads: 1,508
The explosion of new web/cloud/IoT-based applications and the data they generate are transforming our world right before our eyes. In this rush to adopt these new technologies, organizations are often ignoring fundamental questions concerning who owns the data and failing to ask for permission to conduct invasive surveillance of their customers. Organizations that are not transparent about how their systems gather data telemetry without offering shared data ownership risk product rejection, regu...
Feb. 23, 2017 08:45 PM EST Reads: 1,289
With major technology companies and startups seriously embracing IoT strategies, now is the perfect time to attend @ThingsExpo 2016 in New York. Learn what is going on, contribute to the discussions, and ensure that your enterprise is as "IoT-Ready" as it can be! Internet of @ThingsExpo, taking place June 6-8, 2017, at the Javits Center in New York City, New York, is co-located with 20th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry p...
Feb. 23, 2017 08:30 PM EST Reads: 1,447
Extreme Computing is the ability to leverage highly performant infrastructure and software to accelerate Big Data, machine learning, HPC, and Enterprise applications. High IOPS Storage, low-latency networks, in-memory databases, GPUs and other parallel accelerators are being used to achieve faster results and help businesses make better decisions. In his session at 18th Cloud Expo, Michael O'Neill, Strategic Business Development at NVIDIA, focused on some of the unique ways extreme computing is...
Feb. 23, 2017 08:15 PM EST Reads: 8,021
The Internet of Things will challenge the status quo of how IT and development organizations operate. Or will it? Certainly the fog layer of IoT requires special insights about data ontology, security and transactional integrity. But the developmental challenges are the same: People, Process and Platform and how we integrate our thinking to solve complicated problems. In his session at 19th Cloud Expo, Craig Sproule, CEO of Metavine, demonstrated how to move beyond today's coding paradigm and sh...
Feb. 23, 2017 07:45 PM EST Reads: 3,375
FinTech is the sum of financial and technology, and it’s one of the fastest growing tech industries. Total global investments in FinTech almost reached $50 billion last year, but there is still a great deal of confusion over what it is and what it means – especially as it applies to retirement. Building financial startups is not simple, but with the right team, technology and an innovative approach it can be an extremely interesting domain to disrupt. FinTech heralds a financial revolution that...
Feb. 23, 2017 07:30 PM EST Reads: 1,740
SYS-CON Events announced today that IoT Now has been named “Media Sponsor” of SYS-CON's 20th International Cloud Expo, which will take place on June 6–8, 2017, at the Javits Center in New York City, NY. IoT Now explores the evolving opportunities and challenges facing CSPs, and it passes on some lessons learned from those who have taken the first steps in next-gen IoT services.
Feb. 23, 2017 06:45 PM EST Reads: 1,450
As organizations realize the scope of the Internet of Things, gaining key insights from Big Data, through the use of advanced analytics, becomes crucial. However, IoT also creates the need for petabyte scale storage of data from millions of devices. A new type of Storage is required which seamlessly integrates robust data analytics with massive scale. These storage systems will act as “smart systems” provide in-place analytics that speed discovery and enable businesses to quickly derive meaningf...
Feb. 23, 2017 06:30 PM EST Reads: 6,289