Late last night the Wall Street Journal reported that SoftBank’s Masayoshi Son is working to “gin up” interest among Comcast and Charter Communications to either invest in Sprint or purchase it outright. And that comes as no surprise: Comcast and Charter could give Sprint a serious lift if they agreed to some kind of transaction with the nation’s No. 4 wireless carrier.
Specifically, Sprint could funnel a cash injection from Comcast and Charter into its 2.5 GHz network buildout. And perhaps more importantly, Sprint could leverage Comcast and Charter’s extensive wireline networks and Wi-Fi hotspots to more quickly build out its 2.5 GHz holdings and more cheaply backhaul its mobile network traffic.
“The strategic benefits could be really compelling: the Cable companies have 17MM Wi-Fi nodes today en route to 20MM. What if they repurposed those as small cells for licensed spectrum?” wrote the analysts at New Street Research in a report issued this morning. “The deployment challenges that Sprint has faced with 2.5GHz would evaporate pretty quickly. Perhaps more importantly, this would put the companies on a path to densification for 5G that would be leagues ahead of the rest of the industry (globally).”
Others largely agreed.
“The cable industry’s fiber footprint could uniquely help Sprint densify to better enable the 2.5 GHz spectrum,” noted BTIG analyst Walt Piecyk in a note published today, though he added that it’s unclear whether Comcast and Charter own enough fiber to make a significant difference.
“In fact, Charter already provides backhaul to 25,000 cell sites,” Piecyk added. “We believe cable operators in the United States are well positioned to leverage their fiber investments beyond simply providing backhaul to the wireless industry, but also by attaching wireless access points across those fiber miles for their own use. We previously sized the cost to Comcast to overlay a wireless network on their footprint at less than $2 billion.”
The importance of fiber to wireless networks was underscored today in a report from Deloitte & Touche, which predicted that telecom companies will need to invest up to $150 billion in fiber infrastructure over the next five to seven years to “unlock the full potential of the opportunities associated with fifth generation mobile network (5G).”
It’s that combination of the cable companies’ fiber and Sprint’s 2.5 GHz holdings that is proving so tantalizing; Sprint’s stock jump more than 5% this morning on the WSJ’s report. “We believe S's 2.5GHz spectrum is more valuable than the current stock price is reflecting,” wrote the analysts at Wells Fargo in a note this morning to investors. “In our view, mid-band and high-band (north of 2.0 GHz) spectrum becomes all the more relevant in a 5G world. Evidence of this is seen in the recent Straight Path sale. Based on the background section of the Straight Path S4 filing, there were 20 potential bidders for this asset with the offers ranging from $450MM (one year ago) to the $3.1B VZ eventually paid for this asset. While we recognize this is a different band than S's spectrum it illustrates the carriers' strong desire for more high-band spectrum.”
Small cell buildout challenges
Sprint’s efforts to build out its 2.5 GHz spectrum holdings will small cells has been well documented. What has also been well documented are the difficulties Sprint and other wireless carriers have had in building out small cells. Small cells need backhaul, either fiber or otherwise, and they also need approvals from local regulators before they can be installed.
Thus, a cash injection from Comcast and Charter, alongside access to the companies’ wired networks, could give Sprint what it needs to bring its 2.5 GHz spectrum into the 5G world. Although Sprint has promised to double its spending on its network to up to $4 billion this year, the company still could use extra cash to more quickly stamp out its small cell network.
Further, cable companies like Comcast and Charter often own the rights of way from cities to deploy network elements like small cells—a deal between Sprint and Comcast and Charter would likely pass on those rights to Sprint. That could alleviate the lengthy small cell approval process that Sprint faces in deploying the miniature base stations on light poles and other city infrastructure.
Indeed, Sprint’s Marcelo Claure has already hinted at the advantage Sprint can obtain from cable operators in its efforts to build out 2.5 GHz small cells. "We just did an alliance with a cable company in which we were basically able to put our small cells into the cable infrastructure and be able to generate amazing results,” Claure said in May during an appearance at a JPMorgan investor event. “So we feel extremely comfortable that our network will be able to improve.”
Sprint at the time confirmed that it had inked an agreement with an unnamed cable company to test methods for building out small cells for its wireless network. However, the company declined to provide any other details on the effort.
For Sprint, the clock is ticking
Although Sprint could well gain a major boost from a transaction with Comcast and Charter, there are no indications a deal is imminent. Moreover, any transaction between Comcast and Charter and Sprint could well take a year or more to be finalized and implemented. In the meantime, Verizon, AT&T and T-Mobile will all likely be much further along their respective paths toward 5G. Already Verizon has hinted at plans to launch a fixed 5G service in 11 markets this year, while T-Mobile has said it plans to launch 5G services across all of its spectrum holdings as early as 2019.
And as Sprint continues to boast of its 2.5 GHz holdings, both AT&T and Verizon are working to expand their own high-band spectrum holdings: Verizon has already acquired XO Communications and recently inked a $3.1 billion deal for Straight Path, while AT&T acquired FiberTower’s 24 GHz and 39 GHz licenses.
Hence, it’s clear that Comcast and Charter would likely provide a welcome stimulant to Sprint’s efforts in the United States. However, there’s no assurance that a Sprint-cable company transaction will actually happen, or whether it will happen fast enough to make a difference for Sprint.
“We think near-term stock takeaways [from the WSJ report last night] include positive reactions for Sprint, given its strategic value (spectrum, raw network capacity) comes back into focus,” wrote the analysts at Deutsche Bank in a research note this morning. “We do acknowledge, however, that this reaction may be short-lived if a deal with Cable is not announced (i.e., is Cable just trying to negotiate better MVNO terms beyond just Verizon?) and a TMUS deal does not materialize.” — Mike| @mikeddano