Click here to close now.

SYS-CON MEDIA Authors: Elizabeth White, XebiaLabs Blog, Liz McMillan, David Sprott, Carmen Gonzalez

News Feed Item

Fitch: Sprint/T-Mobile USA: Bigger is Only Better with Execution

A key factor in determining the long-term success of a potential Sprint Corp./T-Mobile USA merger will be the combined company's ability to produce a wireless network on par with the industry leaders in terms of coverage, density and overall network quality, according to Fitch Ratings.

Sprint Corp. and T-Mobile USA are reportedly nearing a transaction in which Sprint will acquire T-Mobile for approximately $32 billion. The combined companies would be of comparable size to Verizon and AT&T from a subscriber point of view, thus providing the necessary scale for improved operational efficiency and profitability to better sustain competition over the long term.

A Sprint/T-Mobile union would improve the network densification required for a higher-speed wireless offering, but would also likely add further integration challenges to Sprint's already lengthy network migration plans, Fitch believes. Sprint's poor operational performance in the past, combined with a lack of capital investment and aging infrastructure, resulted in a growing competitive disadvantage as network quality and speed lagged the industry, particularly as Verizon and AT&T accelerated deployment of 4G services.

Recent network initiatives to improve Sprint's competitive position and 4G service levels has been slow and resulted in elevated churn levels due to the significant network disturbances related to the modernization project. Further capital investments to leverage Sprint's high band 2.5 GHz spectrum advantage will require at least another couple of years as Sprint attempts to improve its national service offering to the level of its peers.

Additional challenges persist. A combination of the two companies would require a regulatory review process with strong potential for litigation, as well as an extensive integration period. T-Mobile carved out a compelling niche in the marketplace during the past year with its "un-carrier" strategy that has resonated with consumers and would be the stronger brand to leverage going forward. Sprint Chairman Masayoshi Son envisions a combined company that could eventually go head-to-head for wired home broadband services, although given the magnitude of such a plan, timing is uncertain. As such, Fitch believes that under parent company Softbank's direction, the combined entity would need to substantially improve the execution of future strategic initiatives to compete more effectively against Verizon and AT&T.

Regulatory approval remains a substantial hurdle for this potential transaction. The FCC and DOJ have made explicit comments regarding their desire to maintain a wireless marketplace with four operators as fewer competitors could result in increased risk of higher prices and decreased innovation. Thus any transaction would be judged on the merits of whether the public's best interests are served and if material antitrust elements are present.

Sprint's chairman has argued that the combination would be an effective counterweight against the growing size of Verizon, AT&T and Comcast that has been bolstered through continued consolidation. Both AT&T and Comcast are attempting to amass more scale with $40+ billion merger reviews before the FCC and DOJ. A combination of Sprint and T-Mobile would result in a direct competitive overlap in a concentrated wireless market. However, it may be unsustainable for the third and fourth wireless operators to remain independent over the longer term as the bulk of the wireless industry revenues and cash flows are concentrated between two much larger players.

Predicting an outcome of a regulatory review for a potential Sprint and T-Mobile combination is difficult given the current regulatory climate. However, regulatory approval of a Sprint/T-Mobile merger would likely require substantial concessions and related divestitures to address public interest concerns and antitrust issues. These could include material 2.5 GHz spectrum divestitures, a substantial commitment to meaningfully participate in the broadcast TV auction, attractive 4G wholesale service commitments, further obligations to support rural partnerships and timeline/milestone dates associated with market deployments targeting home wireless broadband service.

The impact of a potential T-Mobile acquisition on Sprint's pro forma credit profile depends on numerous factors, including but not limited to the overall transaction funding strategy, incremental investment in Sprint by Softbank and anticipated cost synergies. Fitch's working case assumes an equity purchase price of $40 per share for a transaction value of approximately $32.1 billion. Fitch assumes the transaction is funded with a mix of Sprint common stock (50% of transaction value), no incremental investment by Softbank and approximately $16.1 billion of incremental debt issued by Sprint. In this case Fitch estimates that Softbank's pro forma ownership of Sprint would dilute to approximately 57% from 81%. Additionally a modest $2 billion in annual cost synergies is assumed in the base case.

Fitch expects Sprint, as it exists today, to leverage cost reduction efforts that will lead to margin expansion and a stronger overall financial profile. Leverage peaked at 6.1x during 2013 and Fitch anticipates leverage will decline to the low 5x range by year-end 2014. In Fitch's view a potential T-Mobile acquisition could likely delay the anticipated recovery of Sprint's credit profile.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

More Stories By Business Wire

Copyright © 2009 Business Wire. All rights reserved. Republication or redistribution of Business Wire content is expressly prohibited without the prior written consent of Business Wire. Business Wire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
WSM International is launching a DevOps services division that offers assessment, consulting and implementation to large enterprises and organizations with complex infrastructures. This is the first independent services company to create a dedicated practice to help organizations looking to transition to the DevOps model. The concept of DevOps is to blend information technology (IT) software development with operations to optimize the computing infrastructure according to the specific needs of ...
SYS-CON Events announced today that Cisco, the worldwide leader in IT that transforms how people connect, communicate and collaborate, has been named “Gold Sponsor” of SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Cisco makes amazing things happen by connecting the unconnected. Cisco has shaped the future of the Internet by becoming the worldwide leader in transforming how people connect, communicate and collaborat...
Temasys has announced senior management additions to its team. Joining are David Holloway as Vice President of Commercial and Nadine Yap as Vice President of Product. Over the past 12 months Temasys has doubled in size as it adds new customers and expands the development of its Skylink platform. Skylink leads the charge to move WebRTC, traditionally seen as a desktop, browser based technology, to become a ubiquitous web communications technology on web and mobile, as well as Internet of Things...
SYS-CON Media announced today that @WebRTCSummit Blog, the largest WebRTC resource in the world, has been launched. @WebRTCSummit Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. @WebRTCSummit Blog can be bookmarked ▸ Here @WebRTCSummit conference site can be bookmarked ▸ Here
SYS-CON Events announced today that robomq.io will exhibit at SYS-CON's @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. robomq.io is an interoperable and composable platform that connects any device to any application. It helps systems integrators and the solution providers build new and innovative products and service for industries requiring monitoring or intelligence from devices and sensors.
Modern Systems announced completion of a successful project with its new Rapid Program Modernization (eavRPMa"c) software. The eavRPMa"c technology architecturally transforms legacy applications, enabling faster feature development and reducing time-to-market for critical software updates. Working with Modern Systems, the University of California at Santa Barbara (UCSB) leveraged eavRPMa"c to transform its Student Information System from Software AG's Natural syntax to a modern application lev...
Today, IT is not just a cost center. IT is an enabler and driver of business. With the emergence of the hybrid cloud paradigm, IT now has increasingly more capabilities to create new strategic opportunities for a business. Hybrid cloud allows an organization to utilize multi-tenant public clouds, dedicated private clouds, bare metal hosting, and the associated support and services for the right use cases through an on-demand, XaaS model. This model of IT creates tremendous opportunities for busi...
Hosted PaaS providers have given independent developers and startups huge advantages in efficiency and reduced time-to-market over their more process-bound counterparts in enterprises. Software frameworks are now available that allow enterprise IT departments to provide these same advantages for developers in their own organization. In his workshop session at DevOps Summit, Troy Topnik, ActiveState’s Technical Product Manager, will show how on-prem or cloud-hosted Private PaaS can enable organ...
In today's digital world, change is the one constant. Disruptive innovations like cloud, mobility, social media, and the Internet of Things have reshaped the market and set new standards in customer expectations. To remain competitive, businesses must tap the potential of emerging technologies and markets through the rapid release of new products and services. However, the rigid and siloed structures of traditional IT platforms and processes are slowing them down – resulting in lengthy delivery ...
Docker is an excellent platform for organizations interested in running microservices. It offers portability and consistency between development and production environments, quick provisioning times, and a simple way to isolate services. In his session at DevOps Summit at 16th Cloud Expo, Shannon Williams, co-founder of Rancher Labs, will walk through these and other benefits of using Docker to run microservices, and provide an overview of RancherOS, a minimalist distribution of Linux designed...
Business as usual for IT is evolving into a “Make or Buy” decision on a service-by-service conversation with input from the LOBs. How does your organization move forward with cloud? In his general session at 16th Cloud Expo, Paul Maravei, Regional Sales Manager, Hybrid Cloud and Managed Services at Cisco, discusses how Cisco and its partners offer a market-leading portfolio and ecosystem of cloud infrastructure and application services that allow you to uniquely and securely combine cloud busi...
Businesses are looking to empower employees and departments to do more, go faster, and streamline their processes. For all workers – but mobile workers especially – utilizing the cloud to reconnect documents and improve processes without destructing existing workflows can have a dramatic impact on productivity. In his session at 16th Cloud Expo, Mark Grilli, vice president of Acrobat Solutions marketing at Adobe Systems Incorporated, will outline new ways that the cloud is changing the way peo...
Sonus Networks introduced the Sonus WebRTC Services Solution, a virtualized Web Real-Time Communications (WebRTC) offer, purpose-built for the Cloud. The WebRTC Services Solution provides signaling from WebRTC-to-WebRTC applications and interworking from WebRTC-to-Session Initiation Protocol (SIP), delivering advanced real-time communications capabilities on mobile applications and on websites, which are accessible via a browser.
SYS-CON Events announced today that Aria Systems, the leading innovator in recurring revenue, has been named “Bronze Sponsor” of SYS-CON's @ThingsExpo, which will take place on June 9–11, 2015, at the Javits Center in New York, NY. Proven by the world’s most demanding enterprises, including AAA NCNU, Constant Contact, Falck, Hootsuite, Pitney Bowes, Telekom Denmark, and VMware, Aria helps enterprises grow their recurring revenue businesses. With Aria’s end-to-end active monetization platform, g...
SYS-CON Events announced today that Vitria Technology, Inc. will exhibit at SYS-CON’s @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Vitria will showcase the company’s new IoT Analytics Platform through live demonstrations at booth #330. Vitria’s IoT Analytics Platform, fully integrated and powered by an operational intelligence engine, enables customers to rapidly build and operationalize advanced analytics to deliver timely business outcomes ...