Yesterday, T-Mobile announced various “Un-Carrier” moves that the company would undertake if the merger with Sprint is allowed to close. In aggregate, the moves are unlikely to materially affect either pro forma T-Mobile’s financial results or the odds of the deal closing, but given the low cost of offering these plans, we view it as a marginal positive. In this brief note, we run through the various offerings, and their impact (or lack thereof) on wireless and broadband markets and the state AG litigation.
What’s new: This morning, DT issued dividend guidance that was well below expectations, saving the company nearly ~$1BN in annual dividend commitments, noting that there was “greater clarity with respect to several spectrum auctions coming up in the US”. In addition, the company’s re-iterated leverage target suggests ~$10-20BN in capacity at T-Mobile for upcoming auctions. We believe this commentary is supportive of our thesis that a C-Band auction will raise $50BN (LINK), and positive for Intelsat and the other C-Band Alliance members.
As expected, the FCC has issued an Order that approved the T-Mobile / Sprint deal (LINK). In this note, we run through a few quick thoughts on the Order, and why it may not help the companies much in the state AG lawsuit.
We met with Charles Meyers (CEO) and Keith Taylor (CFO) at EQIX’s headquarters following Q3 earnings last week. We gained a ton of insight into the drivers of higher organic growth, the impact the DLR/INXN deal may have on EQIX, the path to margin expansion, and future M&A. We came away thinking EQIX is poised to accelerate growth and outperform expectations in 2020.
We have written about spectrum, its value, and its impact on competitive dynamics continually over the past decade. The past few weeks have delivered a particularly rich seam of new bands we haven’t thought about before, an old band we had forgotten about, and evolving thoughts on the big and obvious bands that have been at the forefront of investors’ attention.
The election is one year awayWe have titled this issue the Special Election T-365 Issue. We recognize that due to the Leap Year, our publication date is actually T minus 366. But 366 doesn’t imply a year as artistically as 365. Besides, when the subject is politics, getting it 365/366 right is good enough as it is even more unusual than a Washington DC baseball team winning the World Series. (OK. That was a long and over wrought way to get a reference to the Nats miracle in this update but now we’re done.) but investors are already wondering about the impact of a potential Warren Presidency on the Telecom, Mobile and Cable Sectors. In this note, we address that question, concluding that while Title II reclassification is likely, investors’ worst fears, particularly price regulation and unbundling, are overblown.
In the first section, we analyze the overall prospects for Warren inspired legislation, concluding that the make up of the Senate, the limited time before the mid-terms, and Warren’s own priorities create an environment in which legislation that would hurt the carriers is unlikely, but that to the contrary, there is some prospect for legislation creating a national framework for privacy and net neutrality, as well as infrastructure legislation, that we think could be mild positives for the sector.
In the second section we analyze the prospects for executive action, specifically at the FCC and DOJ Antitrust division. This is where investors’ fears are most concentrated but we think those fears ignore a number of factors that make actions of material consequence unlikely. For example, while fears about more aggressive antitrust enforcement are well grounded, we think the domestic deals where antitrust might be relevant are largely done and Warren’s target will be the tech sector, which may create a collateral benefit for those in the data transmission business. We think it likely the FCC will undertake some actions that the companies will oppose, such as in consumer protection, truth-in-billing and transparency, but we don’t see those actions as material to equity values. Spectrum is more complex, with some potential upside for cable and smaller mobile carriers and downside for larger mobile enterprises by virtue of Warren’s appointees likely being more sympathetic to unlicensed spectrum needs and favoring smaller spectrum licenses. Again, however, we regard these as unlikely to be material to the equity values of the larger players.
In the third section, we discuss three largely overlooked factors—the courts, a change in market dynamics, and a change in the perception of the greatest corporate threat to the public—that provide an additional safety net to mitigate potential legislative and executive action that might materially damage companies in our sector.
In this weekend update, we answer the top questions we received this week on developments affecting the C-band policy and the TMUS/S/DISH transactions. On C-band, there were several important filings on the amount of spectrum and principles for an auction that help improve CBA’s prospects for a successful outcome at the FCC’s December meeting. A House hearing, however, raised the prospect of bipartisan legislation opposing the CBA plan. Moreover, an extensive ex parte by AT&T raised the prospect that neither CBA nor the FCC are in a position to act quickly, as AT&T noted a number of details that it argues need to be revealed and subject to public comment that are not yet in the record. We also speculate—because in this case speculation is the only approach—on what might have transpired between Senator Kennedy and the President on the C-band policy. On the big mobile deal, we didn’t see anything that we moved the odds, but we answer questions about the FCC order, the Sprint Lifeline investigation, the California PUC process, and a canceled conference between the parties and the Magistrate. We close with a brief meditation on another Gasparino tweet, that is informative about where things are headed, but probably not in the way he intended.
What’s New: AT&T has announced new wireless Unlimited pricing that lowers the price of entry-level Unlimited; this should be help subscriber trends in the coming quarters across both churn and gross adds. Overall, we think the move is supportive of our bullish view on AT&T’s wireless business, which should see sustainable churn declines driven by the company’s deployment of 60MHz of greenfield capacity (for a detailed look at our churn thesis see HERE).
What’s New: The FCC has reportedly sent an Order on Ligado’s license modification application to NTIA for review by the Interdepartment Radio Advisory Committee (IRAC). This is a positive sign for the company; the FCC is advancing the process, at last. It is still unclear how (or if) NTIA / IRAC will respond to the FCC proposal; however, if the FCC is able to adopt the Ligado application, it would release 30MHz of L-Band spectrum for terrestrial wireless use. After a decade of being sidelined due to complaints from the GPS community, the industry would no doubt welcome seeing this spectrum repurposed. Moreover, it could be released for terrestrial use at an interesting time; Ligado has been testing use cases in which the spectrum is paired with higher frequency bands to improve their propagation (see our Intelsat initiation HERE for our detailed thoughts on the value of C-Band).
What’s New: The C-Band Alliance released a new plan to re-allocate 300MHz of the C-Band for terrestrial use (LINK). Other aspects of the CBA proposal, such as auction structure, were largely left unchanged, and we expect further filings to address some of the technical details around the transition. The new plan for 300MHz is a positive step for the CBA as it further solidifies its position at the FCC by making a “significant amount” of spectrum available (one of FCC Chairman Ajit Pai’s four principles as detailed HERE). We remain buyers of Intelsat on the deeply under-valued C-Band opportunity (as laid out HERE).