Welcome!

News Feed Item

Fitch: Sprint/T-Mobile USA: Bigger is Only Better with Execution

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.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
Andi Mann, Chief Technology Advocate at Splunk, is an accomplished digital business executive with extensive global expertise as a strategist, technologist, innovator, marketer, and communicator. For over 30 years across five continents, he has built success with Fortune 500 corporations, vendors, governments, and as a leading research analyst and consultant.
Cloud-enabled transformation has evolved from cost saving measure to business innovation strategy -- one that combines the cloud with cognitive capabilities to drive market disruption. Learn how you can achieve the insight and agility you need to gain a competitive advantage. Industry-acclaimed CTO and cloud expert, Shankar Kalyana presents. Only the most exceptional IBMers are appointed with the rare distinction of IBM Fellow, the highest technical honor in the company. Shankar has also receive...
Most DevOps journeys involve several phases of maturity. Research shows that the inflection point where organizations begin to see maximum value is when they implement tight integration deploying their code to their infrastructure. Success at this level is the last barrier to at-will deployment. Storage, for instance, is more capable than where we read and write data. In his session at @DevOpsSummit at 20th Cloud Expo, Josh Atwell, a Developer Advocate for NetApp, will discuss the role and value...
DXWorldEXPO LLC announced today that ICOHOLDER named "Media Sponsor" of Miami Blockchain Event by FinTechEXPO. ICOHOLDER gives detailed information and help the community to invest in the trusty projects. Miami Blockchain Event by FinTechEXPO has opened its Call for Papers. The two-day event will present 20 top Blockchain experts. All speaking inquiries which covers the following information can be submitted by email to [email protected] Miami Blockchain Event by FinTechEXPOalso offers sp...
Today, we have more data to manage than ever. We also have better algorithms that help us access our data faster. Cloud is the driving force behind many of the data warehouse advancements we have enjoyed in recent years. But what are the best practices for storing data in the cloud for machine learning and data science applications?
DXWordEXPO New York 2018, colocated with CloudEXPO New York 2018 will be held November 11-13, 2018, in New York City and will bring together Cloud Computing, FinTech and Blockchain, Digital Transformation, Big Data, Internet of Things, DevOps, AI, Machine Learning and WebRTC to one location.
Bill Schmarzo, author of "Big Data: Understanding How Data Powers Big Business" and "Big Data MBA: Driving Business Strategies with Data Science" is responsible for guiding the technology strategy within Hitachi Vantara for IoT and Analytics. Bill brings a balanced business-technology approach that focuses on business outcomes to drive data, analytics and technology decisions that underpin an organization's digital transformation strategy.
DevOpsSummit New York 2018, colocated with CloudEXPO | DXWorldEXPO New York 2018 will be held November 11-13, 2018, in New York City. Digital Transformation (DX) is a major focus with the introduction of DXWorldEXPO within the program. Successful transformation requires a laser focus on being data-driven and on using all the tools available that enable transformation if they plan to survive over the long term.
@DevOpsSummit at Cloud Expo, taking place November 12-13 in New York City, NY, is co-located with 22nd international CloudEXPO | first international DXWorldEXPO and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time t...
Headquartered in Plainsboro, NJ, Synametrics Technologies has provided IT professionals and computer systems developers since 1997. Based on the success of their initial product offerings (WinSQL and DeltaCopy), the company continues to create and hone innovative products that help its customers get more from their computer applications, databases and infrastructure. To date, over one million users around the world have chosen Synametrics solutions to help power their accelerated business or per...
DXWorldEXPO LLC announced today that Kevin Jackson joined the faculty of CloudEXPO's "10-Year Anniversary Event" which will take place on November 11-13, 2018 in New York City. Kevin L. Jackson is a globally recognized cloud computing expert and Founder/Author of the award winning "Cloud Musings" blog. Mr. Jackson has also been recognized as a "Top 100 Cybersecurity Influencer and Brand" by Onalytica (2015), a Huffington Post "Top 100 Cloud Computing Experts on Twitter" (2013) and a "Top 50 C...
When talking IoT we often focus on the devices, the sensors, the hardware itself. The new smart appliances, the new smart or self-driving cars (which are amalgamations of many ‘things'). When we are looking at the world of IoT, we should take a step back, look at the big picture. What value are these devices providing. IoT is not about the devices, its about the data consumed and generated. The devices are tools, mechanisms, conduits. This paper discusses the considerations when dealing with the...
Charles Araujo is an industry analyst, internationally recognized authority on the Digital Enterprise and author of The Quantum Age of IT: Why Everything You Know About IT is About to Change. As Principal Analyst with Intellyx, he writes, speaks and advises organizations on how to navigate through this time of disruption. He is also the founder of The Institute for Digital Transformation and a sought after keynote speaker. He has been a regular contributor to both InformationWeek and CIO Insight...
They say multi-cloud is coming, but organizations are leveraging multiple clouds already. According to a study by 451 Research, only 21% of organizations were using a single cloud. If you've found yourself unprepared for the barrage of cloud services introduced in your organization, you will need to change your approach to engaging with the business and engaging with vendors. Look at technologies that are on the way and work with the internal players involved to have a plan in place when the ine...
Machine learning has taken residence at our cities' cores and now we can finally have "smart cities." Cities are a collection of buildings made to provide the structure and safety necessary for people to function, create and survive. Buildings are a pool of ever-changing performance data from large automated systems such as heating and cooling to the people that live and work within them. Through machine learning, buildings can optimize performance, reduce costs, and improve occupant comfort by ...