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T-Mobile says it left $37B in synergies behind when Sprint merger talks collapsed

by Martha DeGrasse

January 15, 2018

Providers of wireless infrastructure clearly dodged a bullet when SoftBank and Deutsche Telekom decided not to merge their U.S. wireless assets. Combined network spending for T-Mobile and Sprint would have declined by billions if the companies had joined forces, according to T-Mobile US CFO Braxton Carter.


“Very conservatively there were at least $37 billion of hard synergies, mostly primarily driven by the network," Carter told a Citi investors' conference this week.  "[T-Mobile CTO] Neville [Ray] and his team, for four or five months, built the most detailed NewCo Network model—it was a thing of beauty." 


Carter did not explain the time frame over which the companies thought they could realize $37 billion in synergies. In 2016, T-Mobile's annual revenue was just above $37 billion.


Over the last 12 months T-Mobile has reported $5 billion in capital expenditures, roughly the same amount Sprint is expected to invest in its network during its fiscal 2018, which starts in March.


Much of the synergy would probably have come from reduced network operating expenses. T-Mobile's annual operating expenses have totaled $35 billion over the last 12 months, and Sprint's annualized opex is roughly $28 billion. Of course not all of that is network spending - T-Mobile devotes roughly one third of its opex budget to selling, general and administrative expense, while Sprint spends a slightly lower percentage. S,G&A is presumably another area in which a merger would have yielded synergies and savings.


"Could something happen in the future? You never say never," said Carter. But he added that the value of a potential deal is falling as Sprint invests in its network. "The more investment, things that they do with the tower companies, it could have a material impact on that," he said. 


"It’s a shame it didn’t happen," said Carter. "We were strong, strong believers that we had a unique opportunity here. And I want to tip my hat to Tarek." Tarek Robbiati is Sprint's CFO, who is being replaced by incoming CFO Michel Combes. 


"We’re sorry to see him go," said Carter. "We got to know the whole team very well. I think he did a really good job given some of the issues."


The biggest "issues" appear to have been reluctance on the part of the parent companies.  Based on comments made by Robbiati after the merger fell apart. SoftBank and Deutsche Telekom apparently struggled to agree on who would have ultimate control of the merged entity. 


Now, T-Mobile US is looking ahead to new merger and investment opportunities. Carter said that he and CEO John Legere are strong believers in the ultimate convergence of cable and wireless, but he described that as more of a "longer tail development."


As T-Mobile builds its cash position, the most likely use of funds is spectrum purchases, Carter said, adding that the company is working on "several spectrum opportunities." 









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