T-Mobile bags 452k subs as 5G starts to roll

An additional 452,000 branded postpaid subscriptions and churn of 0.86% should be enough to put a smile on the face of T-Mobile investors as share price soars 9%.

The majority of telcos might be scrapping and scraping against wider industry trends, but T-Mobile investors will be very pleased with how the business is progressing. Not only has the long-awaited merger with Sprint been formally approved, the financial spreadsheets are also proving to be a success.

“Just five weeks ago, we merged with Sprint to create the New T-Mobile, and we’re more excited today than ever before about the massive value creation opportunity and synergy potential that lies ahead,” said CEO Mike Sievert.

“We are off to the races laying the foundation for the future of the New T-Mobile as we work to execute on our business plan and harness the incredible opportunity ahead.”

T-Mobile financial results for period ending March 31 (USD ($), millions)
Total Year-on-year
Revenues 11,113 0.3%
Service revenues 8,713 5.3%
Net income 951 4.7%
Free cash 732 18.4%

Source: T-Mobile US Investor Relations

And while these are encouraging figures, the real fun is about to being. Sievert has the pleasure of integrating T-Mobile’s operations with Sprint’s.

Having been formally kicked-off on April 1, the two organisations will become one. This means scaled deployments, rationalising the retail footprint and pushing forward with 5G. The latter is perhaps the most interesting element, and the one which will give the best opportunity to close the gap on AT&T and Verizon.

In terms of a 5G offering, T-Mobile now looks to have the most complete proposition. It has access to mmWave spectrum for high-speed downloads, 600 MHz bands for coverage and, thanks to the Sprint merger, 2.5 GHz mid-band spectrum to blend together speed and coverage. This is a 5G assault which ticks all the boxes which is currently in play in Philadelphia with New York next on the roadmap.

T-Mobile still lags behind AT&T and Verizon, but a carefully crafted and aggressive drive towards 5G could shift market dynamics very quickly.

Subscribers for US mobile network operators
Total subscribers 5G subscribers***
AT&T 176,510232 14,416,872
Verizon 182,554,002 16,560,150
T-Mobile and Sprint 114,359,944 18,560,447

*** Forecast by Omdia over the next twelve months

T-Mobile gets 5G boost thanks to Sprint’s mid-band spectrum

It might only be a baby step when you consider the daunting task of integrating two multi-billion-dollar corporations, but T-Mobile has opened its network up to Sprint customers.

Across the US, Sprint customers will be able to benefit from the expansive T-Mobile 4G network, while the 5G proposition has been bolstered thanks to the incorporation of mid-band spectrum.

“Connectivity is more important than ever today, and the challenging time we’re all facing shows just how critical 5G for All is,” said Neville Ray, T-Mobile President of Technology.

“While our amazing team safely works to keep people across the country connected to work, school and family, we aren’t slowing down on building out the broad and deep network that only this combined company can deliver. We won’t stop because this network can do so much good across the country.”

T-Mobile has never been shy about patting itself on the back, though it has been very successful over the last decade. One area which did look to be a weakness was the 5G offering, as its plethora of 600 MHz spectrum was never going to live up to the promise, despite being able to offer the 5G symbol on devices in a larger coverage area. One of the advantages of the Sprint merger was access to valuable spectrum.

Much has been made of the importance of mmWave spectrum, licences which made use of the higher-frequency airwaves, though the reality of experience is very different. Those using the high-band to power 5G offerings were disappointing customers with incredibly patchy coverage thanks to shorter ranges, but Sprint had access to valuable mid-band spectrum.

With 2.5 GHz frequencies available, a more palatable compromise between higher download speeds and increased coverage can be realised. These are the frequencies which have been powering 5G launches in Europe and Asia, though thanks to legacy allocations for radar systems in the US Navy, US telcos have not been able to access the 3.5-3.7 GHz frequencies, know as the innovation band.

Thanks to the merger of the two companies, T-Mobile now has access to these valuable assets and have launched services over these airwaves in parts of Philadelphia, with New York next on the deployment roadmap. 5G is still of course in the embryonic days of development, but access to mid-band spectrum ahead of its rivals give T-Mobile a significant advantage.

New T-Mobile company has already opened itself up to a lawsuit

The newly merged T-Mobile company has barely seen daylight, but it has already irritated one regulator enough that the risk of a lawsuit hovers on the horizon.

As T-Mobile proclaimed the beginning of a new era, the California Public Utility Commission (CPUC) issued an order to the management team. The order stated T-Mobile and Sprint could not merge their operations until the CPUC had officially greenlit the transaction on April 16. This would appear to be little more than a bureaucratic tick-box exercise, as a local judge recently recommended the CPUC approve the deal.

However, in announcing the completion of the deal and beginning the integration process under new CEO Mike Sievert, the new T-Mobile team seemingly believes this procedure is not worth waiting for. Or, it implies the approval is not necessary.

The order from the CPUS states:

Public Utilities Code Section 854(a) states in relevant part that “[n]o person or corporation, whether or not organized under the laws of this state, shall merge, acquire, or control … either directly or indirectly, any public utility organized and doing business in this state without first securing authorization to do so from the commission.” Both Joint Applicants, T-Mobile and Sprint, have California subsidiaries that are public utility telephone corporations under state law, and subject to the jurisdiction of this agency. The merger of the companies’ operations in California is therefore subject to CPUC approval. Accordingly, Joint Applicants shall not begin merger of their California operations until after the CPUC issues a final decision on the pending applications.

In short, do not complete the merger without our approval.

As with all corporate announcements, the new release proclaiming the completion of the T-Mobile US and Sprint merger came with fine print detailing the risks which might cause plans to alter. The below extract is an interesting one:

…the risk of litigation or regulatory actions, including litigation or actions that may arise from T-Mobile’s consummation of the business combination during the pendency of the California Public Utility Commission’s review of the business combination

T-Mobile is effectively admitting to investors and analysts there is a risk it will be taken to court by the State of California and its regulatory authorities.

Ultimately, this is another version of the State versus Central Government saga which has plagued US bureaucracy for centuries. The State Governments retain the right to create localised legislation and regulation, though how this position overlaps with Federal Government rules has always been a point of contention.

In a separate filing made by T-Mobile, its lawyers believe the CPUC is overstepping its jurisdiction.

…The PD [proposed deal] erroneously asserts that the Commission has the authority to “approve the Merger” and impose conditions as a prerequisite to granting such approval. Both assertions conflict with federal law and the Commission’s own precedent.

In other words, the regulator does not have the power to submit additional requirements on T-Mobile in order to gain approval. This could have a significant impact on the way T-Mobile operates over the coming years.

One of the reasons the merger took so long to be greenlit was opposition from State Attorney Generals. Led by New York Attorney General Letitia James, a joint lawsuit was filed opposing the deal. To appease these objections, T-Mobile and Sprint made numerous commitments to the States, though this latest filing might be considered a way for T-Mobile to back out of these promises.

The ‘Proposed Deal’, as it is referred to in the legal document, includes almost 50 commitments which T-Mobile has made to the State of California ranging from data tariffs, 5G deployments and broadband. However, the lawyers are requesting the courts offer them grounds to change the ‘Proposed Deal’ which could have an impact on the commitments made to the court.

If it is accepted that the CPUC does not have the jurisdiction to make demands in exchange for the deal being approved, considering Federal approval has already been granted, it could offer an opportunity for T-Mobile to reshape the commitments it has made across the country. In the legal world, precedent is everything.

The two-year wait for the T-Mobile/Sprint merger is finally over

653 days ago, T-Mobile US and Sprint formally submitted the paperwork to the Federal Communications Commission (FCC) for a $26 billion merger, and today it is officially complete.

As of April 1, 2020, the merged business unit will now trade on the NASDAQ Global Select Market under the symbol ‘TMUS’, officially bringing an end to Sprint as a corporation. This has been a drawn-out and very expensive period for the two firms, but the management teams can finally relax.

And for the energetic, erratic and eccentric John Legere, the days over leading the Magenta Army into battle have also drawn to a close.

Mike Sievert, the new CEO of the combined company, might not have the energy or flair Legere possesses, but perhaps that is a good thing for the next few months. Over the last few years, T-Mobile US perhaps needed a flamboyant CEO to mount a challenge to the leadership position of AT&T and Verizon, but the immediate future for this firm requires a different type of manager.

Now the legal and regulatory hurdles have been negotiated, the new business will need a logical, pragmatic and steady hand to lead integration efforts. Perhaps this is what Sievert is? Having been Legere’s first hire, maybe he was the yin to yang, the balance to the madness which the wild-eyed John brought to the firm.

“During this extraordinary time, it has become abundantly clear how vital a strong and reliable network is to the world we live in,” said Sievert. “The New T-Mobile’s commitment to delivering a transformative broad and deep nationwide 5G network is more important and more needed than ever and what we are building is mission-critical for consumers.

“With this powerful network, the New T-Mobile will deliver real choice and value to wireless and home broadband customers and double down on all the things customers have always loved about the Un-carrier. T-Mobile has been changing wireless for good — and now we are going to do it on a whole new level.”

With today (April 1) being the first day of operations under the new cloud of expectation, T-Mobile has to deliver on the promises it has been making. This is the challenge which Sievert will face.

Firstly, the integration of the two businesses is no small feat. Secondly, the aggressive 5G rollout has to continue. And finally, the promises made to the various different regulators and Attorney Generals will have to be honoured. And perhaps above all else, business value will have to be demonstrated to investors otherwise heads will roll.

And what do we have to look forward to over the next couple of years:

  • The promise of a network which will have 14X more capacity than T-Mobile could deliver alone. The new company has set a six-year timeline to meet this milestone
  • Within six years, the team promises download speeds which are 15X faster than what can be delivered today
  • Also within the six-year window, 100 Mbps 5G download speeds will be available to 90% of the US population, while 5G will be available to 99% of the population
  • $40 billion will be invested into the network
  • The deal has promised to unlock at least $43 billion in synergies for all shareholders
  • Create 1,000 jobs in a customer service centre in Kingsburg, California
  • Create 1,000 jobs in Rochester, New York
  • Open 600 new retail stores across the country

Some of these commitments will have been made to ensure the lawyers stop being a nuisance blocking the completion of the transaction, but now it is over to Sievert who has the unenviable job of delivering on promises made by wild-eyed Legere.

Verizon Super Bowl ad called out for hypocrisy

The purpose of Verizon’s ad at this year’s Super Bowl is not entirely clear, but the stick it has taken is very obvious, especially following the California wildfires blunder.

The advert, which you can see at the foot of the article, seems to be an attempt to emotionally blackmail the audience by highlighting everything 5G won’t be able to do in place of humans, but it has not been particularly well received. The message seems to be little more than a cheap attempt to secure favour, and it does appear the audience has seen through it.

At the time of writing, the one-minute video has been viewed over 57,000 times on YouTube, not a particularly high-number for a Super Bowl ad, being ‘liked’ 287 time and ‘disliked’ 563 times.

Comments have been switched off on the video, though judging by the reaction of the Twitter universe, this was an intelligent decision. Several posters paid homage to Verizon’s decision to throttle firefighter’s data during the 2018 California wildfires, which saw 8,527 fires burn an area of 1,893,913 acres, the most damaging fire season on record.

Again, aside from tapping into a sense of patriotism, a common play for US advertisers, the objective of undermining the role of 5G is not entirely clear. More than anything else, it looks to be a superficial approach to make use of the Super Bowl pandemonium and tug on the heart strings of the US general public.

Ever the opportunist, T-Mobile US CEO John Legere and the Magenta army took the opportunity of one of the worlds most popular sporting events to throw a few digs at Verizon:

The rise of T-Mobile US and the deployment of its 600 MHz 5G spectrum across the US has seen a conflict emerge. Without access to the valuable C-Band spectrum, 3.5 GHz, like the rest of the world, high- and low-band spectrum are forming the foundations of the US telco’s 5G plans.

AT&T, Verizon and Sprint have been aggressively pushing forward with mmWave assets, while T-Mobile US has put the 600 MHz spectrum at the centre of campaigns. Neither will deliver an effective 5G experience which ticks all the promised boxes, mmWave will fail on coverage and propagation while 600 MHz will fall short on speed, but T-Mobile US is making the most of the difficulty by producing very attractive coverage maps if you don’t know what 5G actually is.

It is difficult to pick a winner in the US 5G race right now, but the T-Mobile US team are certainly better at gaining attention and PR inches. Perhaps this explains the misguided attempt at patriotic advertising from Verizon, an alternative approach to gain public credibility which looks to be nothing more than a swing-and-a-miss right now.

RootMetrics US numbers indicate TMUS/Sprint merger is a good idea

The performance metrics of the four US MNOs confirm a significant gap between the big two and the other two.

RootMetrics did a deep dive into the networks of Verizon, AT&T, T-Mobile and Sprint over the second half of last year. In the customary way it then published top-line performance numbers and ranked the networks according to a few sub-criteria. As you can see in the first table below, Verizon comes top in nearly all categories, with AT&T close behind and the other two lagging considerably. We’re not sure why AT&T isn’t number one in any of the speed categories but it’s presumably explained somewhere in the methodology.

The report also takes a specific look at 5G and finds some pretty major variations in performance. Verizon got so excited about the finding that ‘Verizon’s 4G LTE speeds were faster than the low-band 5G median download speeds of T-Mobile in Chicago and Los Angeles and identical to AT&T’s low-band 5G median download speed in LA,’ that it published a special press release. This doesn’t come as a massive surprise since TMUS is devoting so little spectrum to its 5G right now.

The more significant issue raised by this report is how far behind TMUS and Sprint remain on most key metrics. This would seem to support the case for their merger, since the resulting economies of scale, buying power, etc, would allow greater investment in the network. Whether or not that would actually come to pass, or whether shareholders would trouser the cash instead, is hard to predict. But it seems counter-productive to insist they continue to struggle as second-tier MNOs.

T-Mobile/Sprint merger may increase ARPU – what’s wrong with that?

On the first day of the TMUS/Sprinter merger antitrust trial it was revealed that a Sprint exec thinks the merged company will be able to raise prices.

Reuters reports that the prosecution presented WhatsApp messages from Roger Sole, Sprint’s CMO, to his former CEO Marcelo Claure, sent in 2017, that speculated Sprint’s ARPU (average revenue per user) could increase by five bucks after the merger. Sole is insisting this was just conjecture about some distant possible outcome, but it’s nonetheless being used as evidence against the merger.

The fundamental assumption underlying this is that consumers are always best served by lower prices, but is this necessarily the case? Sole also testified that even lowering prices had proven ineffective at luring and retaining new subscribers because as soon as they experienced how rubbish the Sprint network is, they left before you could say ‘churn’.

Sole is effectively highlighting the Catch-22 position MNOs always claim to be in when restricted by operators. If their ARPU is too low then they won’t have the cash to invest in the network, and then everyone loses out. Regulators will typically say ‘that’s your problem mate, we’re just worried about prices’, which is also a valid position, and one used to push back whenever consolidation threatens to take the number of MNOs in a given market below four.

There is little hard evidence, however, that three MNOs constitute insufficient competition and that a reduction from four to three necessarily increases prices. Moreover, the merger of the third and fourth players would presumably improve the network for customers of both, which could be viewed as justification for raising prices by itself.

As we’ve seen with the disappointing early showing from TMUS’s 5G network, MNOs will have to spend a lot of money to deliver on all the promises mad on behalf of 5G. That cash has to come from somewhere and it seems only fair that subscribers contribute. It is, of course, possible that any increase in ARPU just gets trousered by senior telco execs and investors, but that’s not reason enough to automatically oppose any attempt to do so.

AT&T is the latest to make a curious ‘nationwide’ 5G promise

Like T-Mobile US, AT&T has somehow figured out a way to deliver 5G at nationwide scale over the next six months.

For those who sit in the rural locations where 4G signal is still somewhat of a gamble, the claim from AT&T must come as a surprise. But it seems AT&T has taken the bait and is following T-Mobile US down the 5G rabbit hole with an absurd claim it will deliver nationwide 5G in the first half of 2020.

“When we introduced the U.S. to 5G last year, we started with a business-first and experience-based strategy to lay the foundation for innovation to come,” said Thaddeus Arroyo, CEO of AT&T Consumer. “We’re now introducing consumers to the future of wireless with broad 5G service included in our best unlimited plans for 5G devices like the Samsung Galaxy Note10+ 5G.”

The Samsung device is the first in the AT&T portfolio which will make use of low-band spectrum, explaining how the glorious ‘nationwide’ claim can be realised. The expansion of the 5G network using the enhanced coverage airwaves will focus on the larger metropolitan areas over the next couple of months.

What remains to be seen is whether this can be justified as delivering on the 5G promise. Both AT&T and T-Mobile US will make use of low-band spectrum in an attempt to meet the nationwide claim, though these airwaves will not be able to deliver the eye-watering speeds many are expecting in the 5G era. Both could be setting themselves up for considerable criticism with brash promises.

Interestingly enough, despite 5G not being a reality just yet AT&T has decided to launch a ‘5G+’ service. It might sound like an interesting proposition, but once again AT&T is stretching the truth in pursuit of an advertising tagline. 5G+ is 5G making use of mmWave spectrum. It will be faster, but it is still 5G.

Once again, the US telcos are making some ‘creative’ claims to compensate for a tricky situation. The European telcos are surging forward with 5G deployments in the mid-band spectrum, a much more attractive compromise between speed and coverage, while the US telcos struggle to make 5G work appropriately in the mmWave airwaves.

US telcos need to access the valuable mid-band spectrum frequencies, but these have been allocated elsewhere over bygone years. The FCC perhaps needs to take a more proactive stance, as 5G delivered over the low-band frequencies will not create the connectivity euphoria which has been promised.

Another petition appears to delay T-Mobile/Sprint merger

Nine organizations have come together to petition the FCC to delay any permissions to approve the T-Mobile US and Sprint merger until a fraud investigation has been completed.

The petition is focused on a Sprint probe, relating to alleged Lifeline fraud. The under-fire telco has been accused of collecting subsidies from the FCC even though many of the subscribers through the initiative were inactive and not using the service.

“Specifically, the public interest, rural wireless, and labor organizations ask the Commission to pause its review of the merger while important issues related to Sprint’s apparent Lifeline fraud are more fully investigated by the Commission, and also urge the Commission to seek public comment on the DISH waiver requests, the July 26 Dish commitments to the Commission, and related developments, including the DOJ Consent Decree,” the petition states.

The petition has been filed by the Rural Wireless Association, the Communications Workers of America union, Consumer Reports, The Greenlining Institute, the Institute for Local Self-Reliance, New America’s Open-technology Institute, The Rural Broadband Association, the Open Markets Institute and Public Knowledge.

Should the FCC agree with the petitioners, the completion of the merger would be paused until the end of the investigation.

Although T-Mobile US and Sprint have been making progress towards completing the merger, there are still numerous hurdles which will have to be negotiated. The FCC and Department of Justice have green-lit the deal, with concessions to be fulfilled, though that does not mean the law suits will disappear.

Aside from this petition, 16 State-level Attorney Generals have banded together to file a lawsuit against the merger. Led by the ambitious New York Attorney General Letitia James, the lawsuit questions the validity of the merger on the ground of competition. James has argued that with the presence of four MNOs, tariffs are becoming less expensive and coverage is improving; connectivity is getting better for the consumer with the status quo, so why should this be changed?

The nine organizations filing this petition to the FCC are demanding the merger be delaying which the fraud investigation into Sprint is on-going.

The Lifeline Program is designed to offer subsidies to telcos to enable free tariffs for low-income consumers across the country. Participants receive $9.25 a month on average, though Sprint is accused of collecting the pay-out for 885,000 inactive Lifeline customers. This number represents 30% of the Lifeline subscribers Sprint supports.

“It’s outrageous that a company would claim millions of taxpayer dollars for doing nothing,” FCC Chairman Ajit Pai said at the time. “This shows a careless disregard for program rules and American taxpayers. I have asked our Enforcement Bureau to investigate this matter to determine the full extent of the problem and to propose an appropriate remedy.”

Under the rules of the programme, providers of the service may only be reimbursed for a Lifeline subscriber if that subscriber has used the service at least once in the past 30 days. The onus is placed on the telcos to de-enroll inactive subscribers, though it does appear something went very wrong at Sprint.

Considering the investigation is being powered by the FCC, the petitioners might find some joy with this latest effort to de-rail the merger. It might be nothing more than a pause on developments, but it does afford more opportunity for other opponents to gather momentum.

Pai gobbles up Sprint and T-Mobile US merger

After months of headaches and sleepless nights, the tides of favour seem to be turning for Sprint and T-Mobile US as the FCC chief gives his blessing for the union.

254 days into the 180 days the FCC gives itself to approve mergers, FCC Chairman Ajit Pai has officially confirmed his position. It is still not quite 100% guaranteed for the two telcos, however with Pai’s recommendation, the future is looking very rosier.

“After one of the most exhaustive merger reviews in Commission history, the evidence conclusively demonstrates that this transaction will bring fast 5G wireless service to many more Americans and help close the digital divide in rural areas,” Pai said in a statement.

“Moreover, with the conditions included in this draft Order, the merger will promote robust competition in mobile broadband, put critical mid-band spectrum to use, and bring new competition to the fixed broadband market.”

Suggesting this was a protracted and painful process might be one of the biggest understatements of the year. However, it might have been necessary considering the significant impact a merger of this scale could potential have on competition, diversification and network deployment across the US.

Above all else, the US is a monstrous market with an incredibly small number of nationwide telcos. This does of course offer economy of scale to improve investment capabilities, though there is a risk of regional monopolies due to the sheer size and geographical variance across the country. Proposed mergers which would take the number of national telcos from four to three has been extinguished in the past, though this one has passed almost every test.

The greenlight from the FCC Chairman is an important step, adding momentum to positive news from the Department of Justice in the last few weeks. At the end of July, the DoJ’s antitrust division gave the thumbs up, assuming Sprint’s prepaid brand Boost is divested, and Pai has made the same demands.

This is one concession which many expected, but we have major issue with. Dish will acquire the Boost brand, allowing it to make use of its horde of valuable spectrum, satisfying the demands, though will this be enough to maintain the current levels of competition, the objective of both the FCC and DoJ? We do not believe so.

Firstly, instead of having four established telcos in the US, consumers will now have to choose from three telcos and a newbie with zero experience of effectively running a mobile business and network. Dish does not have the competence, experience, infrastructure, processes, billing systems or supply chain to run a mobile business, and it will take years to build these elements to the degree expected.

Secondly, Dish is now an MVNO. It will be able to make use of the T-Mobile network, but the FCC and DoJ has replaced a functional MNO with an MVNO and expects no-one to notice the difference. Both of these agencies expect Dish to have its own network up-and-running in a few years, but this is another ridiculous ambition.

As mentioned in the first point, this is a company which is not practiced in the dark arts of mobile. The three remaining traditional players took decades to rollout their own networks, and they are still not genuine nationwide telcos (there are still network gaps across the country). How is Dish expected to create a nationwide, 4G and 5G, network across a country of 9.8 million km2, with an incredibly variety of different urban densities, geographical landscapes and economic societies.

If anyone thinks Dish is going to be a replacement which can maintain the current status quo, they are quite frankly fooling themselves.

What is worth noting is that this is not the end of the road for Sprint and T-Mobile. It might have secured the relevant regulatory approval, but now it will have to combat the various legal challenges.

Led by New York Attorney General Letitia James, a coalition of State Attorney Generals have filed a lawsuit to block the proposed merger. The lawyers are arguing the merger would harm competition, and it should be blocked to maintain the status quo. As it stands, with four separate MNOs challenging each other, prices and mobile experience is improving for the consumer; the lawyers are arguing that the situation is not broken, it is in fact improving, so why should the FCC and DoJ try to fix an imaginary problem?

Although the approval process from the DoJ and FCC might have been considered a significant problem, the telcos will not have to face legal heavyweights from more than a dozen States. Lawyers have a way of being very difficult when they want to be, so there might well be a few more twists and turns in this saga.