T-Mobile is indeed moving rapidly on its post-merger network integration and build, executives said Thursday, dismissing comments from three public tower companies that implied T-Mobile was off to a slow start.
During T-Mobile’second quarter earnings call CEO Mike Sievert said the tower companies were “spreading some disinformation” about T-Mobile’s pace on network initiatives since closing its Sprint merger April 1. Instead, the operator is “running really fast, with its new 2.5 GHz spectrum already live in major markets and expected to hit thousands of cities and towns across the country at year-end. However, tower companies just don’t appear to be reaping early benefits.
On recent Q2 earnings calls, executives at American Tower, Crown Castle, and SBA all reported they weren’t seeing as much tower activity and new business from the new T-Mobile as they expected at this point - but were optimistic that would pick up down the line.
Before their merger, standalone Sprint and T-Mobile each planned to build a lot of sites, T-Mobile for more capacity and Sprint for coverage, Sievert said. But the combination comes with what's called site avoidance, where the new T-Mobile doesn’t need to build new sites in all of the locations they would have on their own. That translates to money T-Mobile doesn't have to spend, but might not be as great for tower companies.
“I know that’s tough, if you’re a tower company, because billions and billions of dollars of site avoidance causes the kinds of comments you’re now hearing from them,” said Sievert on the call.
American Tower, for example, lowered its 2020 outlook for organic tenant billings growth to 4.5% from 5%, after the anticipated significant ramp in T-Mobile tower activity and new business failed to materialize yet.
“It really is isolated to the new T-Mobile and the timing of when they begin to spend,” American Tower CFO Rod Smith said during its earnings call.
However, the fact that tower companies aren’t seeing high spending yet doesn’t impact T-Mobile’s pace, Sievert said.
“We are moving at an incredible pace,” T-Mobile President of Technology Neville Ray said on the earnings call. The operator’s low-band 600 MHz 5G covers 250 million people for breadth, with depth coming from the mid-band 2.5 GHz piece. T-Mobile also plans to add millimeter wave spectrum on top and is baking its so-called 5G layer cake “super, super fast,” according to Ray.
For example, T-Mobile was starting upgrade activity on about 600 sites per week, every week at the end of the second quarter. In July, that figure jumped to 700 sites per week – meaning thousands of sites per quarter.
While Ray said he couldn’t be more happy, he acknowledged the tower companies may not be feeling the joy.
“We could be doing some more with the tower guys, but there is a competitive process in play right now and we have choices that we can make,” Ray said, noting he anticipates more tower builds into the second half, though left it as to-be-seen. “That doesn’t slow us down. We have lots of options to build and we are building furiously.”
Wells Fargo analysts said in a Thursday note to investors that T-Mobile's comments confirm what American Tower, Crown Castle and SBA reported about a lack of T-Mobile’s tower ramp, but the firm believes it’s just over the horizon.
T-Mobile is working strategically on its network in a way that “maximizes its network build effectiveness” but possibly leaves the public tower companies out of the early phase, according to the firm.
Still, as American Tower indicated, it’s more of a timing issue and Wells Fargo thinks T-Mobile will move strongly on tower builds in the near future.
“We suspect there is competitive positioning between New T-Mobile's network team and the towercos, but ultimately the network needs to touch the scaled public towercos' sites,” wrote the Wells Fargo team led by Eric Luebchow. “With the sheer amount of spectrum being made available, we believe it is only a matter of time before this new build activity materializes for the towercos.”
The firm expects that activity could come as early as the end of the third quarter.