Why the US spectrum war is the driving force behind US telecoms M&A

1. 1
Tariq Ashraf
Why the US mobile spectrum war is the driving force
behind the T-Mobile - Sprint merger and the changes
in the US telecoms market structure
Tariq Ashraf

2. 2
Tariq Ashraf
Executive summary
Mobile spectrum needs are the driving force behind the US telecoms M&A frenzy
 The US telecoms regulator (FCC) and mobile operators chose to prioritize mmWave spectrum in order to launch 5G; however mmWave
limitations make this choice unsustainable in the longer run, increasing mid-band spectrum attractiveness
 In their quest to launch nation-wide 5G networks, mobile operators are increasingly looking for additional ways of acquiring mid-band
spectrum, mainly through M&A deals
 Spectrum allocation and holdings have been shaping the US telecoms market for the past decades and will remain the main driver M&A
and partnerships for the 5G era
Spectrum, spectrum,
spectrum
Key players
US telecoms market
 The US mobile telecoms market is mainly fragmented between 4 national players
 A long awaited merger between Sprint/T-Mobile might boost T-Mobile spectrum and Sprint business fortunes
 In order to approve the merger, the DoJ (Department of Justice) wants to establish a 4th mobile player to maintain market competition
Possible scenarios
 Sprint: while struggling on the business front, Sprint holds the most important share of mid-band spectrum making it an attractive target
 Dish: holds significant spectrum, but does not operate a telecoms network, and is faced with a March 2020 deadline to launch its network
 T-Mobile: needs to acquire spectrum in order to power network operations and its upcoming nation-wide 5G network
 Other players: Verizon and AT&T need spectrum while non-telecoms players (Charter, Comcast, Amazon …) are looking for telecoms
synergies and/or mobile telecoms diversification
Merger goes through Merger plan falls apart
T-Mobile / Sprint merger as the cornerstone of the US telecoms market
 New T-Mobile sells Boost and some spectrum
holdings to Dish, who can:
‐ Run an MVNO
‐ Build/upgrade a network with dedicated
spin-off and/or resell the business
 The new T-Mobile sells Boost & some spectrum
holdings to Amazon who will partner with Dish
to build a new mobile network
 Sprint is acquired by another player (Dish, Comcast, Amazon, …)
or Sprint to sell a part of its spectrum to other mobile operators
 T-Mobile to find alternatives to get spectrum (Leasing or asset
swap with Dish, lobbying toward FCC for the C-band auction … )

3. 3
Tariq Ashraf
The US mobile telecoms market is fragmented between different categories of
players… a Sprint merger would allow T-Mobile to challenge the mobile "big twos"
Spectrum policy in the USA has led to spectrum assets imbalance among telecoms (And non-
telecoms) operators…
This created a marketplace for operator-to-operator transactions
 Verizon had a lot of spectrum, yet its 4G push was so successful, that the company is craving
for more for both 4G and 5G
 T-Mobile bought MetroPCS and repurposed its spectrum for 4G yet it needs mid-band
spectrum for its 5G roll out
 Sprint had a legacy spectrum war chest thanks to multiple acquisitions (Clearwire…)
Tier 1
Tier 2
Tier 3
National
players
Regional
players
T-Mobile, as the distant No. 3 to Verizon - Inc. and AT&T Inc., has probably grown almost as
much as it can on its own. Its achievements are quite impressive, but the company might have
peaked as a smaller, low-cost, pure-play mobile provider.
 Sprint and T-Mobile need one another to go up against Verizon and AT&T, both companies
have a much more solid future together. Apart, they're fighting a small fight against each
other while the Big Twos telecoms operators spread out to TV-and-movie entertainment and
cable-and-streaming services.
 Sprint is an ailing business, losing clients to T-Mobile with a low-rated network reputation
A Sprint/T-Mobile merger offers incomparable synergy opportunities, and boosts business
momentum as it would give more scale to the combined entity to take on "the big twos"
 T-Mobile-Sprint would rationalize and enhance one single national network
 …leveraging the greatest value Sprint offers which would be its spectrum (Sprint has a
spectrum war chest stemming from its Clearwire acquisition, those holdings complementing
T-Mobile's)
 The new entity could be commercially aggressive in new markets as it could serve more
clients
 …yet multiple reports have indicated that T-Mobile has offered or is considering additional
and more tangible conditions to obtain approval from the DoJ, enabling and accelerating a
new well-funded competitor into the US wireless market.
Why merge two tier 2 telecoms operators?
 Achieving scale, in order to compete on
commercial grounds, investment, network...
with tier 1 telecoms operators
 Acquiring spectrum holdings in order to
power network operations and complement
each other
 AT&T and Verizon are still unchallenged at the top due to their scale (In terms of client base
as well as spectrum holdings)
 Sprint and T-Mobile are expanding out their networks and working to establish competitive
differentiation through pricing and marketing,
 Smaller players such as regional players such as C-Spire, US Cellular and Cellular One trying
to catch up with their own 4G services.
The US mobile telecoms market is three-tiered Rationale for a T-Mobile/Sprint merger

4. 4
Tariq Ashraf
Spectrum allocation and holdings have been shaping the US telecoms market for the
past decades, now the "race for 5G" is turning into a "gold rush for mid-band"
Mid-band vs. mmWave spectrum: round 2, fight!
Current ownership as well as need for mid-bands is going to shape
the US telecoms market
Spectrum land grab
 Sprint has the biggest chunk of US allocated
spectrum in the US market, which makes
Sprint the most coveted company for the
past 3 years
 Sprint could bolster its holdings as the FCC
prepares to open up a slice of valuable mid-
band spectrum in the 2.5GHz band: it will be
able to consolidate 194MHz of contiguous
mid-band spectrum (EBS-CBS bands)
mmWave spectrum has much ado about nothing?
 The FCC has been pushing forward with a mmWave 5G spectrum strategy while the rest of
the world has made the mid-band spectrum choice
 Yet disappointing early mmWave 5G launches by Verizon, have shifted the focus from
mmWave to mid-band in the US: indeed even if mmWave spectrum enables high
throughput, it does requires a clear line of sight, and has very low real life results in urban
dense areas
Spectrum bands
 Low-band newly allocated spectrum for mobile networks include the 600 MHz and 700 MHz
bands. These bands are ideal for wide-area and outside-in coverage as well as for deep
indoor coverage
 Mid-band new spectrum has been widely allocated in the 3.5 GHz band, with more
spectrum planned to be made available in the 1.5 GHz (L-band) and 5 GHz (unlicensed)
bands. This will enable high-capacity and low-latency networks with better wide-area and
indoor coverage than high-band spectrum, the mid-band spectrum is an optimal
compromise between coverage, quality, throughput, capacity and latency.
 High-band (mmWave) spectrum clearly provides the anticipated leap in data speed,
capacity, quality and low latency promised by 5G. New spectrum bands are typically in the
range 24 GHz to 50 GHz, with contiguous bandwidths of more than 100 megahertz per
network.
Source: Ericsson
Mid-band holdings of main US mobile operators (Mhz)
 T-Mobile has been playing catch-up getting spectrum via public auctions so far, and bets on
its Sprint acquisition to bolster its spectrum position, also its lobbying against a private C-
Band auction (Satellite operators owned mid-band spectrum) who will favour big-pocketed
operators only (Namely Verizon and AT&T)
 Verizon has (Wrongly) bet on mmWave and now needs to expand its 5G network via mid-
band spectrum for dense and very dense areas, yet cannot acquire any telecoms operators
due to anti-trust concerns
 AT&T face the same conundrum and needs to get mid-band spectrum, it cannot scoop a
telecoms operators in order to get spectrum yet could swap DirecTV for Dish mid-band
spectrum
 Dish has swaths of spectrum, yet did put it to use it so far, albeit having an obligation to
deploy a network by March 2020

5. 5
Tariq Ashraf
The T-Mobile-Sprint merger is facing 50/50% odds depending on DoJ possible
remedies, both outcomes do impact the US mobile market structure as well as market
competitive dynamics
Merger goes through Merger plan falls apart
1
2
T-Mobile / Sprint merger
The new T-Mobile sells Boost & some
spectrum to Amazon that will partner with
Dish to build a new mobile network
and enriches its AWS offering by extending
the network capabilities of its cloud
offering (Edge computing) and creating a
new wholesale business
The new T-Mobile sells Boost and some
spectrum to Dish that can:
 Launch an MVNO, while deploying
its own network
 Deploy a telecoms infrastructure
and spin-off the business
 Bundle Boost and its spectrum
and reselling it to a 3rd party that
will invest on infrastructure
3
4
Sprint is partially or
entirely acquired by
another company &
serves as the
foundation of a new
wholesale B2B
business for the
acquiring company
Sprint sells a chunk of
its spectrum holdings
to another company in
order to raise money to
update its network
5
6
T-Mobile sells a stake
to Dish: spectrum in
exchange for shares
Dish leases a part or its
entire spectrum
holdings to T-Mobile
7
T-Mobile tries to lobby
the FCC in order to get
better buying
conditions for new
spectrum auctions
NEW
NEW
For Sprint For T-Mobile

6. 6
Tariq Ashraf
Merger goes through as DoJ requires "acceptable" spectrum business remedies
2-step
approach
T-Mobile & Sprint do accept DoJ remedies and sells Boost mobile business,
some spectrum holdings and a chunk of former Sprint’s network
(Boost is a prepaid business and is not considered as a key asset for the new
T-Mobile combination)
A third party finds these divested assets complementary to its ongoing activities and is
willing to purchase them.
1 2
Deal type Participants Details Rationale
M&A + Alliance
Dish acquires
assets sold by the
New T-Mobile
 The new T-Mobile sells Boost and some spectrum holdings
to Dish and a significant chunk of Sprint’s former network
to Dish + new T-Mobile or Dish sells spectrum holdings to
Verizon
 Prerequisite : T-Mobile signs a deal to sell Sprint's network should the merger goes through for
a sound price, reducing Sprint’s acquisition cost
 As Dish lacks a telecoms network, the company enters a
temporary MVNO agreement with T-Mobile before
building a network before March 2020
 T-Mobile & Sprint sell Boost since T-Mobile has already shifted most of its
prepaid client base to postpaid
 Dish continues to enrich its spectrum holdings & Verizon gets the spectrum it
needs to maintain network quality, while New T-Mobile meets DoJ
requirements for a merger
 Dish either gets a ready to use network or either has a business model
justifying building a new network (Wholesale + traditional MNO)
 The new T-Mobile sells Boost and some spectrum holdings
to Dish
 Dish deploys and operates its own network using some of
its spectrum. This new operator gets spun off or is sold to a
third party
 Dish keeps some unused spectrum which is ultimately sold
 Boost becomes the new 4th mobile operator using Dish’s new network and
provides wholesale services to cable operators. This new entity becomes
ultimately a spin-off of Dish and could be purchased by a consortium of
cable operators.
 By doing so, Dish increases overall spectrum scarcity and is able to sell its
remaining spectrum at a price premium
 The new T Mobile sells Boost & some spectrum to Dish
 Dish repackages Boost and its spectrum and resells it to
Amazon that build its own network
 Dish monetizes its spectrum either directly by selling it, or indirectly by
selling its shares in the new JV
 Amazon would be able to cross-sell its customers with mobile services and
would be able to put forward its content in a context of diminishing net
neutrality
 Amazon can enter the market with competitive offers in order to build its
market share, these offers could be bundled to Amazon prime
 Amazon enriches its enterprise offering by extending the network
capabilities of its cloud offerings (Edge computing) and creating a new
wholesale business
M&A + Alliance
Amazon acquires
assets sold by the
New T-Mobile
 The new T-Mobile sells Boost & some spectrum to Amazon
 Amazon either buys Dish’s spectrum or creates a new JV
with Dish dedicated to build and operate a new mobile
network
NEW
NEW
NEW
Merger goes through
NEW

7. 7
Tariq Ashraf
Merger falls through: T-Mobile deems DoJ remedies too high a price for Sprint (1/2)
Failure
reasons
Too many concessions requested by DoJ: required
spectrum divesture is deemed too important…
…outweighing Sprint substantial restructuring and
investments required in order to turn the business
around…
As Sprint, T-Mobile share the same client pool,
T-Mobile already poached Sprint’s high value
customers and doesn’t need to acquire Sprint low-
value customers
1 2 3
Deal type Participants Details Rationale
M&A
Sprint is acquired
either entirely or
partially by another
company
Full-blown acquisition of Sprint by Dish and business spin-
off including Dish & Sprint spectrum holdings in order to
sell it to another company for a premium value
 Dish would avoid having to build a new mobile network from scratch
 Dish makes a significant premium by reselling its new combined spectrum
holdings
Full-blown acquisition of Sprint by a cable company or a
consortium of cable companies
 Would allow cable companies to launch a mobile business with convergent
offers in dense areas on their footprint, and providing nation-wide wholesale
services in areas where they don’t
Full acquisition of Sprint by Amazon or partial acquisition
in exchange for access to Sprint upgraded network
 Amazon would be able to cross-sell its customers with mobile services and would
be able to put forward its content in a context of diminishing net neutrality
 Amazon enriches its enterprise offering by extending the network capabilities of
its cloud offerings (Edge computing) and creating a new wholesale business
 Sprint finances its network upgrade & creates a new enterprise business
(Wholesale) open to new players and is no longer 100% dependent on its ailing
B2C business
Spectrum sale
Sprint sells a
Chunk of its
spectrum holdings
Sale of a chunk of Sprint’s spectrum portfolio to other
mobile operators or a tech company willing to enter the
telecoms market
 Sprint could finance for its network investment
 AT&T and/or Verizon could scoop spectrum holdings in order to enhance their
mid band spectrum holdings for their nation-wide 5G networks
Future buyer
Merger plan falls apart

8. 8
Tariq Ashraf
Merger falls through: T-Mobile deems DoJ remedies too high a price for Sprint (2/2)
Deal type Participants Details Rationale
M&A
T-Mobile sells a
stake to Dish:
spectrum in
exchange for shares
Asset swap : Dish sells its spectrum in exchange for shares of
T-Mobile, turning Dish into the new main shareholder along
Deutsche Telekom
 Dish becomes the new T-Mobile main shareholder. Dish can monetize its
spectrum holdings and generate value trough a well managed subsidiary
 Dish no longer needs to deploy a new mobile from scratch network by
March 2020
 T-Mobile gets new mid-band spectrum, allowing it to deploy a nation-wide
5G network in order to remain in the 5G game
Alliance
Dish leases its
spectrum to T-
Mobile
Leasing of Dish spectrum to T-Mobile for financial payments
 Would allow Dish to monetize its spectrum holdings while removing its
network deployment obligations
 T-Mobile gets hold of the mid-band spectrum it needs it order to deploy its
nation-wide 5G network
Lobbying
T-Mobile lobbies
the FCC to get
better conditions to
acquire new
spectrum
Intense lobbying toward FCC in order to facilitate new
spectrum acquisition
(C-Band Alliance & CBRS spectrum in particular)
 Would allow T-Mobile to solve its mid band spectrum crunch issue at a
reasonable cost
 Yet seems unlikely to be successful
Failure
reasons
Too many concessions requested by DoJ: required
spectrum divesture is deemed too important…
…outweighing Sprint substantial restructuring and
investments required in order to turn the business
around…
As Sprint, T-Mobile share the same client pool,
T-Mobile already poached Sprint’s high value
customers and doesn’t need to acquire Sprint low-
value customers
1 2 3
Merger plan falls apart