It’s not a new stance, but T-Mobile EVP and CFO Braxton Carter reiterated on Tuesday that the “uncarrier” will be ready to duke it out with Dish Network if its merger with Sprint goes through.
Enabling Dish as a viable player in wireless is part of the U.S. Department of Justice’s (DoJ) conditions for the deal. T-Mobile and Sprint are creating an “extremely viable” fourth competitor in the marketplace and using their assets to do so, including divesting Boost Mobile and other prepaid assets and 800 MHz spectrum, as well as setting up a seven-year MVNO so that Dish can get established in wireless.
Carter gave the DoJ high marks for identifying the assets that Dish has at its disposal—nobody else has the amount of unused spectrum that Dish founder Charlie Ergen has amassed. Ergen was uniquely positioned to capitalize on this opportunity, and “he will be a fierce competitor, there’s no doubt about it,” Carter said. "Bring it on."
The prize is $43 billion in synergies and a network that will be unparalleled in the U.S. He added that T-Mobile spent more than $50 billion over the last seven years to reach parity with AT&T and Verizon, and “this is an opportunity to truly leapfrog their network capability.”
Speaking at the Deutsche Bank conference in Scottsdale, Arizona, Carter was candid about the time it’s taking to get the deal done. “I think we’re all getting tired of it,” he said. “Had we been in a more normal environment, we’d already be closed on the transaction once we got through the DoJ and the FCC. But I’m incredibly proud of our team and the perseverance and everything they’ve done in Washington to make it a reality with the feds, and we’ve got one more stumbling block now,” referring to the lawsuit by more than a dozen states. “We’re still hopeful that we can get this transaction closed this year.” But if it ends up going to trial, currently scheduled for December 9, it won’t close until early next year.
“We are in litigation now with the states,” and he couldn't comment about the dynamics and discussions. But rest assured, both Sprint leadership, particularly Sprint executive chairman Marcelo Claure, and T-Mobile’s leadership are very engaged with states to see “how we could move forward through this situation,” he added.
Other than that, it’s been a great year at T-Mobile. The one silver lining of the deal taking longer is T-Mobile has a playbook that’s essentially complete and it has been able to do some work that will enable it to move fast out of the chute if approval is ascertained. “The bottom line is, we’ve gotten a lot done,” he said. The things that are still in play include unifying a go-to-market offering for the new T-Mobile fairly quickly after closing the transaction and doing away with any legacy offerings. CTO Neville Ray, without spending a lot of money, has been doing a lot of preparation related to the deployment of 2.5 GHz spectrum that will save time if the deal closes.
Here’s a breakdown of some other topics Carter discussed:
On 5G pricing: “Our disadvantage is still scale,” he said. When you look at EBITDA margins and compare them to AT&T and Verizon, “we’re a good 10 to 15 points lower, and I guarantee it’s not because they’re more efficient,” he said. You can go out and raise prices, but “that’s not our philosophy,” he said.
“Our philosophy with the un-carrier is to grow and scale and unlock the margin potential” and when you do the financial analysis, you create more value by driving a generally stable ARPU, which is what it will continue to do rather than charging more for data. “We have a lot of growth ahead of us and we’re not interested in sacrificing future value creation for a short-term gain of monetizing.”
On churn: During the last quarter, T-Mobile reported a postpaid churn rate of 0.78%, two basis points away from Verizon. Only four times in the history of wireless has anybody reported a churn level of 0.78%, he said. That’s related to the longer handset life cycle; its customers are hanging onto their phones almost four years now.
On small cells: He emphasized T-Mobile’s macro cell strategy. Historically, a disadvantage for T-Mobile was having no low-band spectrum, so it had to architect a network that was much more dense using mid-band spectrum versus low band. That ultimately turned into a significant advantage, he said. By the end of this year, it will have 65,000 macro cells and 25,000 small cells.
The New T-Mobile will have 85,000 macro cells and 50,000 small cells. “Not a huge amount of small cells because we don’t need them. We have the macro density," he said, adding that's a much more efficient cover in the way it will deploy the mid-, low- and high-band spectrum in its portfolio. That’s a big difference from AT&T, Verizon and Sprint, who have densified their networks.
T-Mobile’s philosophy around small cells is to leverage players in the market that have done the fiber, like Crown Castle and other entrepreneurs. “What we’re doing is working with those companies and doing full turn-key. We’re not laying our own fiber. We have no interest in doing that. That’s not our core competency,” he said.
On spectrum: Carter stayed mum about the upcoming millimeter wave auction due to the quiet period, but he said T-Mobile has over 500 megahertz nationwide of millimeter wave spectrum, thanks in part to the 2013 acquisition of Metro PCS, which had acquired millimeter wave spectrum in major metro areas. T-Mobile also has 600 MHz and some 700 MHz spectrum. On a stand-alone basis, it would be imperative for T-Mobile to participate in future spectrum auctions. “We don’t believe that will be the case, but that is the reality of the situation,” he said.