If Sprint were in worse shape, T-Mobile merger deal might not have happened.
Sprint yesterday announced “the best profitability in company history” thanks to growth in its customer base, just days after saying it needed to merge with T-Mobile USA in order to improve its network.
If Sprint was doing worse, the merger might not have happened. Sprint CEO Marcelo Claure said that the company’s successful turnaround “positioned Sprint for strategic opportunities which led to our proposed merger with T-Mobile.” Sprint’s profitability and free cash flow was key in giving Sprint the chance to combine with T-Mobile, he said.
In the just-ended fiscal year, Sprint said it had “its highest annual retail phone net additions in five years and the best profitability in company history with its highest annual operating income at $2.7 billion and annual net income for the first time in 11 years, even when excluding the one-time favorable impact from tax reform.”
Sprint’s net income for fiscal year 2017, which ended on March 31, 2018, was $7.4 billion, though that “included a one-time $7.1 billion non-cash benefit from tax reform.” Sprint had posted a net loss of $1.2 billion and operating income of $1.8 billion in the previous fiscal year.
“In the fourth year of our turnaround, Sprint delivered the best financial results in company history as a result of growing our customer base and continuously improving our cost structure, while significantly improving our LTE network and initiating deployment for the first truly mobile 5G network in the US,” Claure said.
Sprint said it added nearly 1 million retail phone customers in fiscal 2017 after losing about 90,000 retail phone customers the previous fiscal year. Sprint has boosted its number of postpaid phone customers in 11 consecutive quarters and reported free cash flow of $945 million.
Sprint doing well on its own
Sprint is still the fourth-place carrier after Verizon Wireless, AT&T, and T-Mobile. But its strong results could make it harder for T-Mobile and Sprint to convince regulators that Sprint can’t remain competitive on its own. T-Mobile would buy Sprint for $26 billion in stock if the deal is approved.
Sprint has 54.6 million connections, including postpaid and prepaid customers as well as wholesale and affiliate connections.
The Federal Communications Commission must review the merger to determine whether it’s in the public interest. The FCC under the Obama administration prevented both AT&T and Sprint from buying T-Mobile in order to preserve the existing level of competition, back when T-Mobile was in worse shape than Sprint.
The Trump administration’s FCC has been friendlier to the telecom industry and is less likely to block a merger than it was during the Obama years. But the Justice Department could be aggressive, given that it’s already trying to prevent AT&T from buying Time Warner Inc.
Claure boasted of Sprint’s results in a Twitter thread. Besides improved financial results, Claure said that Sprint’s average download speeds “are up an amazing 36 percent” year over year. The five-year turnaround plan is coming to fruition, with “customer growth, reduced costs, profitability, and improved network performance all at the same time,” he wrote.
T-Mobile, Sprint say merger needed for 5G
When they announced their merger deal on Sunday, Sprint and T-Mobile said they need each other to build a strong 5G network. “Neither company standing alone can create a nationwide 5G network with the breadth and depth required to fuel the next wave of mobile Internet innovation in the US and answer competitive challenges from abroad,” the companies’ merger announcement said.
Yet both T-Mobile and Sprint previously promised to build the best 5G network in the US standing alone, and Sprint continued to tout its standalone 5G plan in yesterday’s earnings announcement.
Sprint also announced that Sprint CFO Michel Combes will soon take the CEO role over from Claure, who will continue to serve as executive chairman during the merger process.
Claure told investors that Sprint and T-Mobile have already met with US regulators about the merger and are confident of its approval, according to a Seeking Alpha transcript. “This is going to be a long journey, but… I’m happy in the fact that we have been received with an open mind,” he said.
As part of the merger agreement, Sprint is already implementing a roaming deal that will give Sprint customers access to the T-Mobile network. “This agreement is effective immediately and should be implemented in the next 60 to 90 days, meaning our Sprint customers will have access to the best of Sprint and the best of T-Mobile,” Claure said.
The roaming deal with T-Mobile is far better for Sprint than its roaming deals with Verizon and AT&T, Claure said. “I cannot tell you what [Verizon and AT&T] charge us,” but it is “close to armed robbery,” Claure said.
Sprint and T-Mobile spectrum will be complementary in building a 5G network together, Claure also said. T-Mobile is “deploying their 5G network on 600MHz and we’re deploying ours on 2.5GHz,” he said. Putting the two together will be “quite easy,” he said.