Sprint/T-Mobile announcement could be delayed, but BTIG asks why T-Mobile would rush in

Deutsche Telekom sign
T-Mobile parent Deutsche Telekom doesn't need a deal as urgently as Sprint does, according to BTIG Research.

The announcement of a merger between T-Mobile and Sprint may be delayed until after the carriers post quarterly earnings later this month, according to one report. And at least one analyst thinks T-Mobile shouldn’t be rushing into any deal with its smaller rival.

The two carriers were widely reported to be finalizing a proposed merger that could be unveiled by the time third-quarter results are released in the next two weeks. But Bloomberg reported late Thursday that it now appears unlikely that the two sides can hammer out terms by that time and will wait another two to three weeks to unveil an agreement.

An announcement could still come alongside earnings reports if those results are delayed, however, Bloomberg said.

But BTIG Research’s Walter Piecyk said T-Mobile investors are questioning how T-Mobile could justify an “at-market” merger with Sprint given the spectrum holdings of the two companies. Sprint’s valuable 2.5 GHz spectrum is widely viewed as a key component of any potential deal, but T-Mobile parent Deutsche Telekom may not find those airwaves as valuable as others do given T-Mobile’s existing spectrum portfolio.

“We believe Deutsche Telekom would have to assign over $20 billion of value to Sprint’s ‘excess spectrum’ and NOLs (net operating losses) in order to justify an ‘at market’ merger between T-Mobile and Sprint,” Piecyk wrote on BTIG’s blog. “However, we do not believe that an adjustment for spectrum is merited as T-Mobile brings its own ‘excess spectrum’ to the table and that spectrum is actually more critical for a successful combined enterprise. T-Mobile investors are therefore appropriately concerned about the risk of an ‘at-market’ transaction with Sprint.”

T-Mobile has invested heavily to amass low-band airwaves in recent years. It spent more than $1 billion last year on 700 MHz A Block licenses from a handful of companies in specific markets, and earlier this year it dropped $8 billion on 600 MHz licenses in the FCC’s incentive auction.

Sprint’s 2.5 GHz spectrum is prized for its ability to transmit significant amounts of data quickly, but because it doesn’t propagate as well as lower bands it requires increased network densification. Sprint likely hasn’t been able to deploy service on those airwaves as it would like to due to its precarious financial position. Some of that spectrum is already being used to deliver faster speeds, and “a large portion” is likely to be dedicated for wireless backhaul use, Piecyk said, preventing it from being “an excess, sellable asset.”

Meanwhile, T-Mobile has also compiled a significant amount of midband spectrum, while Sprint’s midband portfolio is lacking by comparison. So while Sprint may feel pressed to close a merger just to make ends meet, Deutsche Telekom shouldn’t be feeling much pressure to make any kind of deal. And if T-Mobile eventually does feel compelled to acquire high-band spectrum, other opportunities exist.

“T-Mobile does not need a merger with Sprint to succeed, but Sprint might need one to survive,” Piecyk continued. “Sprint has done a great job cutting costs and reducing churn, but there are long-term impacts to its lack of capital investment and lack of deep low-band spectrum position. We expect that to manifest in higher churn, lower gross additions and ultimately reduced cash EBITDA in future years. We are also skeptical that Charter or others have an interest in Sprint. Meanwhile, T-Mobile has an opportunity to buy or lease additional spectrum from Dish or utilize the CBRS band if they cannot gain access to Sprint’s 2.5 GHz spectrum.”