John Legere, the executive tapped to lead the proposed merger between Sprint and T-Mobile, is hoping that the transaction will get an expedited review process. The companies are hoping to close the deal in the first half of next year.
That’s not a surprise considering time is definitely working against Legere.
First, Sprint and T-Mobile executives have said it will be “business as usual” while the companies work to obtain the necessary regulatory approvals to consummate their long-sought merger. Business as usual means that both companies will continue to build out their respective 5G networks.
This creates a significant problem of efficiency. A big part of the argument behind merging Sprint and T-Mobile is that the combined carrier will be able to build “the mother of all networks” via the combination of T-Mobile’s extensive 600 MHz holdings and Sprint’s trove of 2.5 GHz holdings, as well as through a combination of their respective mid-band spectrum assets.
However, if things continue “as usual,” Sprint will continue to ink tower and construction deals focusing only on its own spectrum holdings, while T-Mobile will do the same for its own.
The 5G problem
Indeed, T-Mobile has said it expects to have 5G kit deployed in fully 30 cities by the end of this year. Meantime, Sprint has promised to launch a nationwide 5G network in the first half of next year, and is adding 2.5 GHz equipment to thousands of its towers in order to reach that goal.
The management of Sprint and T-Mobile reiterated yesterday during a conference call with analysts that they continue to see run rate cost synergies of more than $6 billion via the transaction despite this situation. A big part of that will stem from the integration of their two respective networks, which will involve decommissioning around 35,000 redundant macro towers (alongside the construction of 50,000 small cells, up from about 10,000 today for both companies).
But the clear problem here is that both Sprint and T-Mobile are embarking on major 5G network deployments now – and they’re going to do that work separately. That means at least some of their work this year will have to be reconsidered if the deal is officially consummated sometime next year.
Now, to be clear, the network engineers at Sprint and T-Mobile are accomplished integrators, having previously subsumed networks like those from MetroPCS and Clearwire. Moreover, they’re walking into this problem with eyes wide open, and may take steps this year to pave the way for an easier merger process if the deal is approved next year. But they also will need to hedge their bets considering analysts are giving the deal a 50/50 chance of passing regulatory muster; meaning, each carrier’s engineers will need to build their own solid 5G network base just in case the merger is not approved.
There’s no doubt that Legere, who will be in charge of 5G if the merger is accepted, probably would have had a much easier time of it if Deutsche Telekom and SoftBank had come to Sprint/T-Mobile merger terms in November.
The auction problem
A second timing problem for Legere, and one that may be just as important in the long term, stems from the FCC’s upcoming auction of millimeter wave spectrum, currently scheduled to start in November.
T-Mobile has made it clear that it wants to obtain more mmWave spectrum for its 5G buildout. Indeed, the company wants that spectrum so badly that it has asked the FCC to auction several different mmWave spectrum bands all at once, rather than one at a time as the agency currently plans to do.
The problem here is that Legere probably wouldn’t bid on much mmWave spectrum if he had control of Sprint’s 2.5 GHz spectrum, which analysts have described as striking an ideal balance between propagation and capacity. However, since he probably won’t have control over that spectrum by November, he probably will want to make sure T-Mobile has what it needs in case the merger doesn’t get approved – and that may well leave him with lots of mmWave spectrum that he might not need later on if the merger is approved by the middle of next year.
Legere is obviously aware of this issue. He said yesterday that Sprint and T-Mobile would work to make sure they could still participate in the auction as separate companies despite their merger plans. But if they both bid big, they might end up with too much spectrum that no one else in the industry will want to buy from them if their merger is approved.
Again, if SoftBank and Deutsche Telekom had reached a Sprint/T-Mobile merger agreement in November, Legere’s timing problem may not have happened at all, considering the companies could have legitimately expected the deal to be approved within a year (meaning, by the start of this year’s mmWave auctions).
And, because Sprint and T-Mobile will need to wait a year to see if their transaction will be approved, AT&T and Verizon will have a full year to plan their respective auction and 5G strategies without worrying about a merged competitor.
Legere is now definitely aware of the fact that time is money. – Mike | @mikeddano
Editor's Corners are opinion columns written by a member of the Fierce editorial team. They are edited for balance and accuracy.
Article updated July 26 to correct Legere's auction statements.