Editor’s Corner—Sprint’s MVNO for Altice doesn’t fill the T-Mobile merger void

Roughly 24 hours after Sprint and T-Mobile ended their merger talks this weekend, Sprint announced it will power a wireless service for Altice, the nation’s fourth-largest cable operator. And though it may seem like Sprint is replacing one major opportunity for another, the overall value of the two deals isn’t even close.

After months of will-they-or-won’t-they rumors and speculation, T-Mobile and Sprint on Saturday put to rest (at least for now) their merger negotiations, but both carriers issued curt statements saying negotiations between the two companies had been called off.

Then, on Sunday afternoon, Altice and Sprint announced Altice would launch wireless service through an MVNO with Sprint, while in return Sprint said it would “leverage the Altice USA broadband platform to accelerate the densification of its network.”

The timing and tone of the announcements certainly appears as if Sprint’s Marcelo Claure is telling investors and the wider market that Sprint doesn’t need T-Mobile to be successful, and that it has options beyond a T-Mobile and Sprint merger.

That may well be true. After all, it’s clear that Claure has made significant strides in improving Sprint’s market and brand position and rekindling its momentum.

But it’s important to point out that an Altice MVNO with Sprint isn’t nearly as significant as a merger between Sprint and T-Mobile would have been.

First, Sprint already has MVNOs with a number of other companies, both small and large. For example, internet services company Tucows has long operated an MVNO through Sprint; in its most recent quarter it announced it now counts around 170,000 accounts and 278,000 devices (though some of those may be T-Mobile customers since Ting also operates on T-Mobile’s network). Other notable Sprint MVNOs include Google’s Project Fi and Wing, a new MVNO founded by two millionaire millennials.

Thus, an MVNO with Altice certainly won’t hurt Sprint’s position, but it’s by no means the beginning of a new business model for Sprint.

Perhaps more importantly, Altice doesn’t carry the same weight in the United States that, say, Comcast does. Comcast is an MVNO for Verizon, and has been using Verizon’s network to sell its Xfinity Mobile services to its roughly 25 million customers. Since launching the service earlier this year, Comcast has gained 250,000 Xfinity Mobile customers, or around 1% of its addressable customer base.

Altice, on the other hand, counts just 5 million customers in the United States, which means that any wireless service that it would offer would probably only appeal to a portion of that smaller base of customers. (If Altice’s MVNO enjoyed the same growth pattern that Comcast’s Xfinity Mobile has, it would only have 50,000 customers six months after launch.)

And even if Altice found success with its MVNO, there doesn't appear to be anything preventing Altice from inking a deal with another carrier. Expanding to multiple carrier partners is a strategy that a number of MVNOs have embraced over the years.

But what about Altice’s promise to help Sprint with its network densification efforts? It’s true that Sprint has been working feverishly to densify its network, primarily through the deployment of its 2.5 GHz spectrum. That spectrum doesn’t propagate nearly as far geographically as Sprint’s 800 MHz and 1900 MHz spectrum bands. Indeed, the carrier’s new HPUE technology, currently available in around a dozen handsets, is designed specifically to improve the reach of its 2.5 GHz spectrum.

But Sprint’s 2.5 GHz build-out has been stymied somewhat by the difficultly the operator has had in getting wired connections in the locations where it wants to build towers and small cells, as well as approval from local zoning regulators for the installation of that equipment. These problems aren’t exclusive to Sprint, but they’re certainly exacerbated by Sprint’s 2.5 GHz holdings.

Altice could well help Sprint get access to wired backhaul connections, and the company likely does own the kinds of rights-of-way permits that local zoning regulators require.

In fact, this kind of arrangement isn’t new to Sprint’s Claure: Sprint in May confirmed to FierceWireless that it inked an agreement with an unnamed cable company to test methods for building out small cells for its wireless network, though the company didn’t provide any other details on the effort.

The big problem here though is that Altice can only support Sprint’s network densification efforts in locations where Altice actually owns a network. Altice does operate services across 21 states, including in New York and other urban areas where Sprint would likely want to densify its network, but Altice is by no means a nationwide salve for Sprint’s wireless build-out.

"While we view the MVNO as providing network deployment efficiencies as Sprint continues to play catch-up, our enthusiasm is tempered by Altice's somewhat limited footprint," wrote the analysts at Jefferies in a note issued this morning. "Altice's network passes ~7% of US households, though its fiber presence (in part through Lightpath) extends to nearly 20k fiber route mile spanning 20 states (assuming this is part of the deal). Sprint would most certainly benefit from similar arrangements with CMCSA and CHTR, which together nearly blanket the country and have significantly more customers."

Further, others in the small cell industry are warning that buildouts simply can’t be rushed. Crown Castle’s CEO, for example, said that he expects small cell deployments to continue to take up to two years to complete.

And that brings us back to the collapse of the merger talks between Sprint and T-Mobile. That transaction would have created a nationwide wireless carrier with substantial spectrum holdings across low bands like 600 MHz and high bands like 2.5 GHz. It also would have created a customer base—and associated market power—similar to that of AT&T and Verizon. Basically, it would have taken two scrappy challengers and created a market behemoth.

And that missed opportunity isn't lost on Sprint's executives. In a conference call to discuss the company's deal with Altice, Sprint's CFO Tarek Robbiati said "I will not venture in selling this transaction in making up for the tens of billions in synergies that we would have had jointly with T-Mobile had we merged with them. These synergies were enormous by every analysts’ account. This transaction is a pretty interesting creative transaction, but it will not deliver the tens of billions in synergies that we would have seen in a merger with T-Mo."

Clearly, the agreement between Sprint and Altice is many things, but it is not a replacement for a merger between Sprint and T-Mobile — Mike | @mikeddano

Colin Gibbs contributed to this article. This article was updated Nov. 6 to include comments from Sprint's CFO.