The Consolidation of Sprint and T-Mobile

The New T-Mobile: Consolidation of #3 and #4

This is an excerpt from the tech analysis report “Sprint and T-Mobile Merger Consolidation” available now. To learn more, go to https://wade4wireless.com/2018/05/13/the-new-t-mobile-consolidation-report/.

A product of www.TECHFECTA.com and www.wade4wireless.com, technology analysis to help you invest and grow.

Overview:

Here’s to the New T-Mobile, a new company in the USA made up of the #3 and #4 carriers. Will it happen? Maybe. To be honest, it is a merger, but T-Mobile wants to run the company. Why not? Can they do the magic they did with the Old T-Mobile? They did a pretty good job with T-Mobile USA.

The New T-Mobile would not be owned by one company but split up between Deutsch Telecom and SoftBank and shareholders.

Here is the split:

·       41.7% Deutsche Telekom

·       30.9% Public shareholders

·       27.4% Softbank

They intend to have the company split 3 ways. By the way, Sprint will disappear. All that will be left is the debt. Everything else will be merged into T-Mobile. This is what T-Mobile wanted, to purchase the assets. Unfortunately, they get all the debt.

I believe that Softbank is hoping that T-Mobile can absorb Sprint and become profitable again. All the groups know that to compete with the behemoths AT&T and Verizon, they need to pair up. 

They feel they can lower the debt by consolidating services, sites, and jobs. I always think that the idea that job creation in a merger will happen. Initially, there is an uptick in work, but the idea is to save money, and that is done through job elimination within the company.

Let me give you an obvious example. If there are Sprint stores and T-Mobile stores in the same mall, would you keep them both open? Of course not, one would close to save on salaries, rent, utilities and so on.

The companies merging makes sense. Their play is to roll out 5G quickly, which I think that T-Mobile is capable of. They have the ability, the drive, and an excellent team to do it. All they need is the spectrum. Sprint has the 100MHz of the 2.5GHz spectrum which is TDD, prime spectrum for 5G. If anyone can make 5G happen, it would be the team that John Legere built.

The companies hope to overtake AT&T, that has been one of Legere’s primary goals. This is a quick way to do that in one fell swoop.

Consolidation

Here is where we expect to see all the savings. In the consolidation of sites, towers, cores, contractors, processes, stores, departments, and so on. It’s all going to save money. While they will start with 2 headquarters, I am sure that will wither down to one eventually, maybe 3 years.

It may not be as easy as we think. When merging carriers, they generally merge the spectrum into one or the other. In this case, 4G requires a lot of spectrum. AT&T has done a good job of integrating smaller companies into their system. However, this is a larger integration. T-Mobile has done it in the past, but there are differences now.

T-Mobile merged a smaller carrier into their network on a smaller scale. With the growth of 4G, they will need to make sure they have all the 2.5GHz spectrum where they want it. To save money, they will want to put everything on one platform or on one section of the tower. It is going to be a challenge to do this. Especially with the massive MIMO equipment. That will be very expensive to move. There is more to it than moving the antennas. I’ll go into it in the site equipment section below.

I mentioned before how the consolidation of the networks will see savings. I broke each section out below.

Spectrum

Spectrum consolidation will be interesting. First off, will the FCC let them keep all the spectrum? Will they be able to have this much spectrum? I can’t wait to see what happens and how the FCC will reign in the excess spectrum.

I would think if T-Mobile could turn spectrum in, they may turn in the 700MHz, but then again, maybe the 1900MHz would be better. Sprint, on the other hand, would probably turn in the 800MHz. I have no idea if the FCC will recall some of the spectrum, but it would not surprise me. I am curious if the FCC would let them choose or make a demand of what should be given back.

Let’s look at what they have.

·       Sprint

o  800MHz, FDD, band 26

o  1900MHz, FDD, band 25

o  2.5GHz spectrum, TDD, band 41

·       T-Mobile US

o  700MHz, FDD, band 12

o  1900MHz, FDD, band 2

o  1700/2100MHz, FDD, Bands 4 and 66

o  600MHz, FDD, Band 71

To combine the spectrum may not be so easy. That is because Sprint still relies on CDMA, (3G) for voice in many areas. They still have CDMA devices on their system, and T-Mobile still has some GSM devices out there. To remove all those customers and migrate them to 4G may take some time, maybe a year or so. T-Mobile is way ahead of Sprint on this. They have already rolled out VoLTE, Voice over LTE, which means they no longer need the 3G voice. Sprint is rolling out VoLTE in 2018, way behind schedule of everyone else.

Why does this matter? Look at the systems and site equipment sections.

For now, this company will have more spectrum than anyone else. Sprint has more spectrum than anyone with the 2.5GHz spectrum. They have 120MHz to work with. That is a lot of spectrum in one band, and it is readily available for deployment. Sprint as a company has not used this to their advantage. While they rolled out 2.5GHz spectrum, they only used half of it. They seemed more interested in selling off the additional spectrum than in deploying additional broadband. They were slow to roll out the 2.5GHz spectrum nationwide. It wasn’t until late 2017 that they showed interest in the additional spectrum with the massive MIMO project they announced.

I assume it was a financial decision to limit their spectrum play. I assume they wanted to sell it off to pay down debt, but apparently, they didn’t have any serious bidders. Now with 5G rolling out and massive MIMO becoming a reality, Sprint appears to be stepping up to the plate.

T-Mobile has been working to roll out their 600MHz spectrum across the nation. This is an excellent rural spectrum because the properties of 600MHz allow it to travel far. This is attractive in rural areas, but in urban areas, it can pose some problems, especially at high speeds.

If this merger goes through, the spectrum-rich New T-Mobile will be sitting in the 5G driver’s seat.

I think we need to look at the CBRS. Remember how T-Mobile pushed back and wanted the rules changed so they could keep more of that spectrum longer and get bigger chunks of it? T-Mobile was looking at this because they needed something to fill the smaller holes. This was missing from their portfolio. If the merger happens and they get the 2.5GHz spectrum, then the need for the CBRS goes away. While it would be nice to have, and they may use it for indoor coverage, it’s not going to be a critical part of the roadmap.

Core

What is the core? It is the equipment that all the remote sites go back to for subscriber information. It’s that simple. The core is the interface between the site and the real world, or at least it used to be. It holds all the controlling servers for all the sites, so they know which subscribers are paying to be on the system and it tracks all the billing. It also tracks talk minutes and data usage. There is generally one per market or one per region. Look at it as the control center.

Not only does each carrier have a core, but they have a core for each market or region. These are mainly huge data centers full of servers. This is carrier specific and could have all the OEMs equipment from the field, like Ericsson, Nokia, and Samsung, along with the router OEMs, like Alcatel-Lucent, Cisco, and maybe Juniper. Massive data centers, for now, eventually they will move more and more to the cloud.

The core for each carrier can be merged. This will probably take about 1 to 2 years. I would think now with virtualization taking off it would be easier than ever to migrate everything together. I would say that T-Mobile has been keeping their core up to date. Sprint still has legacy 3G support, but maybe the 4G and 5G core components can be migrated into the T-Mobile core quickly and efficiently. I don’t see why not. It’s a great time to put it all together.

Site equipment

What is the site equipment? It is the equipment at the tower site. It could be a small cell site, but most of the money is in the macro site which could be on a rooftop or a tower. This equipment generally is the RF base station. However, at a cell site, there is also backhaul equipment, like routers and switches, and servers. The RF base station, we’ll call it a BTS, is made up of a BBU, power supply, cabinet, router, and other equipment. It also has the antenna, radio head, and the cabling to connect it all. So, the BTS is the ground equipment, radio heads, and antennas.

The equipment at the site will need to be consolidated. With the growth of 4G LTE and the addition of 5G, this should be relatively simple where the OEMs are the same.

Sprint has 3 OEMs including STA, Nokia (former Alcatel-Lucent), and Ericsson. Those are the three vendors they moved with back when Network Vision rolled out. Each is market specific.

T-Mobile US has 2 OEMs, Nokia and Ericsson. Each is market specific.

Where the LTE site equipment is made by the same OEM, I would think that the merger should be simple. However, it may require that the equipment is consolidated into one system or the other.

At the site, New T-Mobile is going to want to have everything in one cabinet on the ground. This means that the equipment will have to be consolidated.

On the tower, they will want to combine the radio heads, or in the case of massive MIMO, get as much into one active antenna as possible. This is not as likely because the active antennas can only handle one band as of 2018. This may change in the future.

New T-Mobile will need to decide if they plan to deploy all the spectrum at all the towers or if they can rely on the slices of spectrum. For instance, they have plenty of 2.5GHz and 600MHz spectrum to serve everyone right now, at least for 4G and 5G.

Will they rely on those spectrums and keep the other for the legacy sites? Does this make sense? Currently, I think it does. I’ll tell you why. If they have VoLTE working, then the voice issue is resolved. If they can get the UE devices to have all the spectrum in it, then it will be easy to roll out.

To roll out UEs with all the spectrum may take 2 to 4 years. It will take time, but I am sure that they will offer some enticing plan to impress the subscribers enough to purchase new units. Maybe not all, but enough to make a dent.

I have not addressed the elephant in the room, that is the 3G networks. Sprint has voice on 3G; in fact, they rely on it for a good portion of their network. They have been late to the part with VoLTE. So much so that now the legacy equipment will be out there well through 2021 unless there is some plan to accelerate the migration. I have not heard of any plan just yet.

With Sprint rolling out massive MIMO equipment on 2.5GHz, it will make a difference in how the equipment is deployed. If T-Mobile wants to put everything on their section of the tower, it may not be that easy. You see moving 4G equipment will be a challenge. There must be new hybrid cable installed. It may need the radio heads moved along with the coax and fiber jumpers to be with the antenna. It’s not an easy task.

Here is some background. With the deployment of LTE, most of the equipment for the same OEM is interchangeable, for the most part. With T-Mobile having only 2 OEMs, things should roll out quickly. I don’t know how the STA OEM equipment will play out, but the other 2 OEMs, Nokia and Ericsson should be able to roll the systems out quickly. They should also be able to put in the massive MIMO equipment at the time of the merger. However, can Sprint wait that long? I don’t think so. If the merger doesn’t happen, then Sprint falls farther behind, which means they will not be able to roll out 5G even later than planned. The idea is to have 5G and market the new system to show customers the differentiation between Sprint and other carriers.

Towers (rent)

The towers and rooftops are where the site equipment is located. It could be a tower, rooftop, lamppost, flagpole, billboard, or anything that could hold an antenna for a macro site or a small cell.

I think that this is where the companies will want to save more money. I think when you look at the new systems, this would be a good time to upgrade everything to massive MIMO and 5G while consolidating. Unfortunately, when consolidating sites, it will take time. The leases are usually locked in for 5 to 10 years, and usually, there is no way out. How does that work? Let me give you a high level. The tower company will let you remove your equipment any time, but you will pay the rent regardless if it is there or not. Sprint learned this the hard way when Nextel had their leases locked in for 5 to 10 years, and Sprint had to pay the rent for that full 5 to 10-year term. In fact, Sprint stopped removing the equipment to save money. They just didn’t see the point, so they would leave dead equipment on the tower until they had to remove it.

The tower companies are in a position of strength. They know they have the towers and know that most municipalities will not let new towers be built. They have the only game in town, or at least at that spot.

The RF teams will have their hands full trying to determine which location is better than balancing that with the cost of the rent and moving the equipment. It will be a challenge, but they have up to 5 years to do it. They may look at the expiration of each lease and must prioritize that way.

Merging the technical systems

T-Mobile and Sprint are undergoing rollouts for their respective systems. Will they slow or speed up for each? Will they continue no matter what or will the merger create problems?

You will have technical systems that both companies use that need to be merged. This will take a long time. Sprint has their database system, and T-Mobile has theirs. They have systems in place and tools that each group uses. This sounds like it’s not a big deal, but it will be critical as they start to work together.

I know that this takes time and they must keep each system in place until they figure out how to migrate the data from one system to another. This is going to be a tedious process, and most of it may have to be done manually. There is a lot of data for each company. I would think that T-Mobile will want to keep their systems in place, but you never know, Sprint has been doing a lot with a limited workforce, so they may have a better system in place.

While most people outside of the company won’t even consider this being an issue, but when you live through a merger, the systems in place can stop any part of the operation. It takes the right people from each organization to be in place and understand what the needs are. They will bring them all together, but it may be painful. Someone must get both groups to work together, and the biggest obstacle will be getting people to change. Change for people is hard. Nobody likes to learn a new system. However, if they look at the shortcomings of the system, they have maybe they can appreciate the new systems. It helps when you look at the upside of the new system.

One thing, once people get the new system working, then they will find all the faults with that system, I know I always do.

Backhaul

The backhaul will be interesting. If the carriers consolidate like we think they will, then the backhaul at every site will be huge. Especially if massive MIMO is at the site. Think about it; you will have all of T-Mobile’s customer, all of Sprint’s customers, all working over the same backhaul. Hypothetically twice the UE devices working over the same backhaul. It may require a 10 to 100 Gbps backhaul. That is huge and expensive.

First off, backhaul to a new core may not be so bad. They just have to reroute the traffic to the new core. They will need 2 paths at some point, so they don’t’ have to do a hot cut, although a hot cut may be the only way. It’s nice to test the backhaul before you go live. There are so many issues.

For the sites, they may need to look at how the backhaul links are distributed. If they have several sites going back to a macro site then have that site go to the new core, life is good. Again, dual links for a while then move to the new one and cancel the old.

I wonder how the leases are for the fiber, is it something that the carriers will have to hold onto for a year or 2 before they move? I don’t know, but they may have signed long-term deals to save money. That could come back to burn them. Although, most fiber backhaul companies are probably easier to work with than the tower companies. They can just reroute the traffic or build a duplicate link to a specific area. They will be able to double their profits for a year or two by working with the carriers in this way.

What about the workforce?

Will they increase the company’s workforce, of course not, they will reduce even though both sides are severely overworked? One thing I have learned is how these 2 carriers work for their teams hard. They always seemed overworked, and I am sure they look at the merger as an upcoming nightmare. It doesn’t matter what side you’re on; the workload is going to triple. They must do all the work of the consolidation and even then, they may lose their jobs when the consolidation finally happens. That’s life, but it still sucks when it’s your job that gets eliminated.

I know that T-Mobile implied that there would be no layoffs, but let’s be real, how will they sustain if they have duplication. It’s not realistic. The stores, customer service personnel, and office people can’t have duplication. It doesn’t make sense. They will find a way to reduce the workforce.

Not what they want to hear, but it’s a fact.

OEMs

Look at Samsung, Nokia, and Ericsson to start. These are the site OEMs for Sprint. T-Mobile has Nokia and Ericsson. Who will stay? I mentioned this earlier; it costs money to change OEMs. To make a change will be expensive for several reasons.

However, it also costs money to sustain too many OEMs; three may be pushing it for T-Mobile.

Some background on OEMs, let’s call it OEM 101 for nationwide carriers.

·       You don’t want just one OEM, there is no competition, and there may not be innovation. The competition is healthy and allows for growth. The OEMs will fight over market share, features, upgrades, maintenance, managed services, and so on. For the carriers, competition is good.

·       Too many OEMs is a problem as well. The more OEMs you have, the more experts you need internally to manage the OEMs. The more lab support you will need, the more equipment and spares you need, and quite frankly, it’s more people to negotiate with.

·       The magic number for most carriers is 2 OEMs, enough to be competitive yet not too many to manage. Sprint went with 3; I am sure they had their reasons. 

·       OEMs all fight for more work, to sell new equipment, and for services. They offer all that they can to build value with the carriers. This is how they add revenue and get in tight with the carriers. They know that they can drive more business once they win a significant amount of market share.

·       The carriers know whom they're dealing with, they partner with the carriers to offer new features and expand.

·       Both sides help each other. The OEM is looking to sell more to the carrier, but the carrier relies on the OEMs to provide new features to their customers. They all need to work together to improve systems.

I thought maybe T-Mobile would go down to two, the two incumbents that they already have. However, I also know that Softbank is a fan of Samsung. So maybe Samsung can hang on. I think the final decision may come down to money. What I am trying to say is if the carrier can find it cost effective to change the OEM when they make a move, they will do it.

LTE and 5G allow multiple OEMs to be on a region. It’s not like 3G where you had to have one or the other. Well, you didn’t have to have one or the other, but it made the engineering easier and handoff cleaner. LTE has overcome many of those problems by being a stable interchangeable protocol. It really works well no matter who the OEM is next to it.

That’s where Samsung may have an advantage; they could try to get more market share or get a price of the T-Mobile system. They would have to leverage their relationship with SoftBank.

To be honest, I would be surprised if they added more Samsung. Samsung would have to have a great price point or an amazing differentiator to get more market share. They haven’t gotten more with Sprint. I would think that the New T-Mobile may want to lower the number of OEMs, so Nokia and Ericsson are sitting pretty in the network since they are in both networks already. Ericsson or Nokia would have to screw up to lose market share really. Seriously, they would need to blow it.

There are other OEMs in the network like maybe Cisco or Juniper for networking. For small cells, it could be SpiderCloud, Airspan, and others. For Wi-Fi, it could be Ruckus or Ubiquity. Those will not change. If anything, they could all get more market share.

GCs and contractors

Will there be a problem for the GCs doing work? Will it ramp up or down? Here is the view I see; the GC work is going to ramp up regardless of the merger. Here is why:

·       Massive MIMO deployed by T-Mobile and Sprint

·       5G upgrades by all carriers

·       T-Mobile rolling out 600MHz

·       AT&T rolling out FirstNet spectrum and upgrades

·       Verizon continuously expanding

·       All carriers filling gaps

·       Sprint continues to roll out 2.5GHz

That is a taste of what’s happening out there. The GCs will be busy. That doesn’t mean it’s high margin work. The carriers have done all that they could to get the tower work as low as possible. However, it’s a lot of work to deploy all of this along with the small cell and CRAN expansion. It’s all happening, and the carriers will be spending a lot of money through 2021.

The uptick of work is making a difference across the USA because the carriers are trying to plan out their expansion, but it’s all the carriers doing the work at the same time. It’s feast or famine; the next 3 years are the feast, then it will be famine for 5 or more years.

My point here is there will be increased contractor work regardless of the merger. However, the merger will keep the crews working well past 2021 because it will take a long time for the deal to solidify and the leases to expire. The merger could prolong the tower work well into 2023, maybe 2024. This would be good for the crews and GCs that rely on this work to make a living. They could have plenty of work for the next 5 to 7 years.

We all want more work, and this will be a queue for growth.

UE Devices and Billing models

The UE devices will all tout 5G when it happens. It won’t be much of a difference at first except a marketing aspect. All consumers will want 5G. Where we should see a difference is how people can use these devices to get internet access in their homes and business. The smartphone as a hotspot may become more and more common. There may be an increase in carrier cards in laptops because 5G access may become synonymous with Wi-Fi internet access.

Much of that will rely on the carrier's plans, but if people can get internet access on their devices and laptops for a flat fee, then why pay the cable company and your carrier.

The rub here is that laptops and tablets will need to add 5G or LTE-U access to the device. This could eliminate the need for a cable modem in your home, at least in urban areas. How much would consumers like that? They could move hassle-free. They could use their laptop to watch TV, movies, or anything. This is what the millennials are doing today. That demographic is only growing. The baby boomers are decreasing. There may be a day when they think a cable modem is archaic, just like a POTS line.

Distributors

What I am talking about here are the parts distributors of ancillary equipment like cables, jumpers, hardware. Also, small cells and router equipment. The carriers will buy the larger and more expensive equipment direct. For instance, RFS, Amphenol, and CommScope have quite a bit of the market locked up. Or at least they should; some carriers may still buy through a distributor like Tessco, Talley, or Hutton simply because of warehousing. Most carriers want the best cost, and they are letting everyone know it. They are standing firm.

There are a lot of other materials that are needed, like antenna mounts, antenna masts, and hardware for the towers. Thanks to TIA-222 Rev H, this is going to add a lot of hardware to the bill.

Don’t put your money on coax. While it’s still used in 3G and LTE, the massive MIMO concept with active antennas and broadband will rely on fiber to direct to the antenna. No more stand-alone radio heads in most markets. 

The 5G growth will mostly be the OEM and fiber. The cables up the tower now are fiber. The jumpers at the site are fiber. Do you see where this is going? It’s a fiber world not only for backhaul but at the site as well. The only copper at new sites will be the ground systems.

It’s no secret that all the carriers need to cut costs, including Verizon. They are going to do that by squeezing the distributors. It’s one area they can control costs. All the carriers are looking to pay less for the same services. They hit the OEMs, tower climbers, engineers, and more. They offshore more than they ever have in hopes of saving money. It all adds up. They know that the delivery pipe revenue can’t sustain much longer on the current flat plan models.

Distributors know this, so they must be more competitive than ever.

Interested? Get the full report:

This is an excerpt from the tech analysis report “Sprint and T-Mobile Merger Consolidation” available now in PDF at:

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About Wade

Chief Technology Analyst for TechFecta.

Tech author, blogger, podcaster. 

TechFecta, Tech consulting for the real world. www.techfecta.com

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