Weekly Telecom Notes: Sprint, Verizon And AT&T

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The past week saw quite a few important developments in the telecom sector. Verizon (NYSE:VZ) exceeded the LTE expansion expectations it had set earlier this year by announcing that its LTE network will be available in 417 U.S. markets on October 18th itself, more than two months ahead of schedule. AT&T (NYSE:T) continued to snap up spectrum from multiple smaller sources with a couple of FCC filings this week, requesting approval for a spectrum swap with T-Mobile and a purchase of licenses from Peregrine. Towards the end of the week, Sprint (NYSE:S) surprised the market by confirming that it is in talks with Japanese telco, Softbank, for a substantial investment in itself.


In a surprise move that saw Sprint shares jump up to 20% in trading Thursday, the carrier confirmed rumors that it is in talks with Japanese telco, Softbank, about a potential deal that could see Softbank assume a majority stake in Sprint. [1] Although Sprint warned that a sale wasn’t assured, it did say that the negotiations involve a “potential substantial substantial investment by Softbank in Sprint”. How much Softbank was willing to pay has not been ascertained but rumors put the deal at worth $13 billion for a two-third stake in Sprint. If true, such a deal would value Sprint at over $19 billion, a premium of about 25% over Sprint’s market capitalization before the rumors broke out.

While Sprint’s stock has certainly benefited from these talks, we believe that a potential deal would boost the company’s fundamentals as well, most notably its highly leveraged balance sheet. Softbank’s interest in Clearwire’s spectrum could also prop up Sprint, which plans on using the latter’s LTE resources for additional 4G capacity down the road. We recently revised our price estimate for Sprint to about $5.30, which is slightly behind the current market price following the news. For more information about those revisions, see our article Sprint is Worth $5.30 Excluding Takeover Rumors.

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It seems having a wide lead over AT&T and Sprint isn’t going to stop Verizon from being aggressive with its 4G LTE deployment plans. The largest wireless carrier in the U.S. said earlier this week that it will exceed its year-end target of covering 400 markets with LTE on October 18th, more than two months ahead of schedule. This will take Verizon’s total LTE coverage to 417 markets – a long way ahead of second-placed AT&T’s 76. Sprint, meanwhile, has its recently launched LTE network in 24 cities and T-Mobile is yet to start its LTE deployment.

With the launch of Apple’s (NASDAQ:AAPL) iPhone 5 and several other LTE-compatible Android smartphones, Verizon will look to tout its LTE lead and differentiate itself from other carriers. This will help it increase the adoption of 4G LTE, which has so far been slow to take off. Increasing LTE usage will not only help Verizon recoup the huge capital expenses it has been incurring on LTE but also increase network efficiency and margins. Additionally, Verizon will look to increase its ARPUs as higher 4G speeds lead to a surge in subscribers’ data usage. (see Verizon Exceeds LTE Expectations; Will See Margins And ARPU Rise)


Having learned a lesson from the T-Mobile debacle last year, AT&T (NYSE:T) is targeting smaller deals/acquisitions to meet its spectrum needs. The second largest U.S. wireless carrier recently filed applications with the FCC, requesting approval to swap wireless spectrum with T-Mobile in 55 markets across 17 states. [2] The spectrum swap will help AT&T augment its PCS spectrum holdings, which it currently uses for 2G but plans to re-farm for LTE purposes in the coming years. In addition, AT&T plans to buy three 700MHz licenses in the lower B block from Peregrine Spectrum LLC to meet its near-term LTE needs. [3]

This comes on the back of a host of spectrum deals AT&T announced in recent months, including decisions to acquire Nextwave Wireless and purchase spectrum licenses in the 700MHz and AWS bands from Cox Communications, CenturyTel, Comcast (NASDAQ:CMCSA) and others. These multiple small spectrum deals give AT&T the best chance to build a spectrum war-chest big enough to combat a looming spectrum crunch while not raising the FCC’s hackles like it did with one big acquisition proposal last year.

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  1. Sprint confirms in talks on potential sale to Softbank, Reuters, October 10th, 2012 []
  2. AT&T, T-Mobile, and Cook Inlet Seek FCC Consent []
  3. AT&T Mobility Spectrum LLC, AT&T Mobility Puerto Rico Inc., and Peregrine Spectrum LLC Seek FCC Consent []