T-Mobile’s Business Push, Technology Advantages, and 5G Slicing with Daryl Schoolar

Full Transcript

0m10s Speaker 0

Hello, and welcome to the two hundred and thirty sixth episode of the week with Roger, conversation between analysts about all things telecom, media, and technology by Recon Analytics. I'm Don Kellogg, and with me as always is Roger Antner. How are doing, Roger?

0m23s Speaker 1

I'm good. Hello from Baltimore.

0m25s Speaker 0

Hello. So Roger, we've got a few things on the list for today, I thought we could start with some news in the tower space from Crown Castle. Do you want to tell us about it?

0m35s Speaker 1

Based on popular demand, I'm here in Baltimore to speak at the Maryland DC Wireless Association event later on today. So I had dinner with David Yacoub and his team, so thank you for the invite. And one of the topics they asked for was this. So Crown Castle sold its fiber assets and its small cells to Zayo and the private equity company that backs Zayo respectively. Basically undoing their strategy of an integrated fibre tower sale, and so they got $8,000,000,000 back for the $16,000,000,000 investment that they made.

1m26s Speaker 0

Ouch. Yeah. Was it their whole strategy though to be out there with fiber and towers and kind of vertically integrate everything? And this is just backing out of that, right? I mean

1m35s Speaker 1

Yeah. And in theory and on paper, that's a really awesome idea. It makes a lot of sense. Unfortunately, we don't live in theory and on paper. You have three wireless carriers, four wireless carriers, sorry, Dish, right?

1m50s Speaker 1

And two of them, AT and T and Verizon are considering fibre core assets and multi use networks. And Dish building out not everywhere and being very cost conscientious as they should be, you're running out of how can I do this cheaper, better than the carriers? And, you know, you have especially Verizon. Verizon always likes to own when they think it is a core asset. AT and T thinks it's a core asset.

2m25s Speaker 1

Right? Doesn't leave a lot of space for somebody else.

2m28s Speaker 0

Well, The business case here is economies of scale. Right? And if you don't

2m32s Speaker 1

get scale,

2m33s Speaker 0

right, it doesn't work. Right? So

2m35s Speaker 1

It doesn't work. Multi tenant only works when you have multi tenants. Right. When two out of the three and a half or so rather do it themselves and your business model goes from $16,000,000,000 investment to 8,000,000,000 sale.

2m50s Speaker 0

So that's the Crown Castle viewpoint on this. Like, what makes this attractive for Zayo? I know, you know, we had them on a number of weeks ago and, you know, they're building out all their fiber assets.

2m59s Speaker 1

It's $8,000,000,000 instead of 16. You get an asset that's half off, and at half off, you're like, yeah, you know, your hurdle becomes a lot lower than what you need in terms of number of sales, right? And Crown Castle is great in working with carriers and Zayo may or may not be able to use a lot of it is the fiber out to a sell side. So if that sell side happens to be next to a business, Zayo has a fantastic sales force that sells to businesses. Then they can sell to that business that has the sell side on top, where maybe only one carrier buys the thing, but then the second guy is the business.

3m45s Speaker 1

Whereas Crown Castle was less optimally set up to sell to businesses and enterprises.

3m51s Speaker 0

So we'll keep an eye on it. I think it's an interesting acquisition and and, you know, as you say, a repediation of of the strategy on paper.

3m59s Speaker 1

It's similar to Ericsson wanting to run outsourced networks. Sprint was willing to do it because Sprint needed other people's money. But Ericsson could never manage a network cheaper than Sprint could, with the same people and everything, right? The carriers are already efficient in how they run the networks. There's relatively small amounts where they can cut.

4m27s Speaker 1

And you had Verizon who would never outsource their network. AT and T, probably not. And then you had T Mobile, and T Mobile, it all changed with the Sprint acquisition, right, and even beforehand they were like a maybe, But in the end Ericsson was the only one and they promised Sprint network savings and took a bath, right? And here it's the same thing. Economies of scale is very, very difficult if you have less than a handful of potential customers.

4m59s Speaker 0

So another topic I thought we could cover, there's been a big spectrum sale happened recently. Do you want to tell us about that?

5m5s Speaker 1

Yeah. So Grain Management, not a seed company, but private equity company, was first announcing that they were selling 600 MHz licenses that they had to T Mobile, and then subsequently that they're buying the 800 MHz former ESMR band from T Mobile. If we remember, that's the spectrum that was part of the say of the Dish transaction, where remember the Dish could buy it for like $3,600,000,000 or so, or not buy it for like 72, And everybody was like screaming, oh, they're gonna buy it, they're gonna buy it, right? And then they didn't buy it, which we told people all along. Then they came in came an auction and the auction failed as well, which now gave T Mobile the opportunity to sell the spectrum at less than $3,600,000,000 And we don't know exactly the price, but that's what's happening here.

6m11s Speaker 1

Since the build out requirement is like 2028, they're asking for a delay for building build out requirement, and they want to sell it or build a network and then sell capacity to everybody else, which everybody else in this case would be utilities, businesses, all of this stuff. I am still not convinced that this is it because it's seven by seven megahertz in the best case.

6m36s Speaker 0

Right. But wouldn't it be good for like a pilot channel?

6m39s Speaker 1

Yeah. But pilot channel for who? All the people who need pilot channels have already pilot channels in spectrum lower than 800. Right? Right.

6m48s Speaker 1

Yeah. So this would be not for a mobile operator. This would be so that a utility would do this. And then the filing, for example, they pointed out San Diego Gas and Electric is building its own network on similar spectrum and they will build it out by 02/1930, right? Which tells you everything.

7m10s Speaker 1

Do I know what I will be doing in 02/1930? No. Do businesses when they're honest know what they're gonna do until 02/1930? In like five years? No.

7m21s Speaker 1

And the slow build out of people who own already their own spectrum should tell you everything you need to know. But then people tell me I'm a private network

7m31s Speaker 0

Skeptic.

7m32s Speaker 1

That's the nice word, right? But I always point back, you know, and we talked about it over lunch here that, you know, we had a golden era of private networks where every trucking company, every business, every warehouse operation had their own spectrum. And then somebody called Morgan O'Brien came around and said like, hey, isn't it a pain to do this yourself and do this? How about this? You give me your Spectrum, and I'll give you all the devices that you need in five years of free service.

8m8s Speaker 1

How about that? Yeah. That's the

8m11s Speaker 0

birth of Nextel. Right?

8m12s Speaker 1

Yes. Yes. Yes. I wanna get rid of having my own wireless network. It's a pain.

8m20s Speaker 1

That's Nextel. Mhmm. Mhmm. And he made billions and billions of dollars on it. What is somebody's pain is somebody else's fortune.

8m29s Speaker 0

So last topic, you know, there's been a lot of things in the news around the economy, where it's going, there's I think a fair amount of uncertainty in terms of what the markets are doing. There's a wireless spin to this too, right? You want to talk a little bit about that?

8m44s Speaker 1

Two of the three wireless carriers came out and said they didn't have a good January. When we look at our data, it was probably also three out of three. Cable guys might have had a decent January because always that January are good. Wireless carriers January is always the worst month. We were puzzling around, right, what could it be?

9m8s Speaker 1

And then the news came out that the whole economy was like, didn't have a good January.

9m14s Speaker 0

Well, a number of different dimensions of that. Right? So consumer confidence took a huge dip. You know, retailers are talking about how January was very, very light.

9m21s Speaker 1

Yeah. And wireless carriers are retailers.

9m24s Speaker 0

Right. But But I mean, I think there's a difference there. You know, we've done some research on this in terms of, you know, where people cut back first. We've done a lot of research about this. And one of the things that we've seen consistently over and over and over again is that wireless and home internet for that matter are not the first things that you cut back on.

9m42s Speaker 0

No. Right? Folks cut back on far more discretionary things first. So things like buying new clothes, eating out, those are the first things to dip down. And for a lot of people, and I think this makes a lot of sense, wireless service and home internet are must haves, right?

9m57s Speaker 1

It's a very important thing. But we also see over and over again that within the wireless category, the first thing that they do if they are in distress is to delay the purchase of a device. And for the good and bad, the way you get people into the door is with device promos. So there are like several questions, right? Is this the economy?

10m23s Speaker 1

And one of the things we're doing, and Don, you and I have done this several times in our joint career together is recession planning for our friends. We're doing that again, right? Looking at all the things. The last couple of times we did it, we were like, you know, the joke is that, you know, economists predicted 12 out of the last five recessions, right? And the last time when everybody was talking about, oh, recession is coming, we looked really hard and we were like, no, it's not coming, right?

10m54s Speaker 1

So we're gonna look very hard again. The other thing is like, if this is not the economy, for the good and bad, a lot of the industry to drive people in the door, the drug of choice is a handset promotion. We are seeing the handset cycle slow down because it's less and less exciting, the incremental device. AI is another, at least at this point, a more or less disappointing thing. More when you look at Apple intelligence, is as intelligent as a

11m30s Speaker 0

Well, I I don't I don't think there's really anything, you know, that's a must have that requires a software.

11m36s Speaker 1

And so

11m36s Speaker 0

The hardware device. Right? It's like so much of it happens on software.

11m40s Speaker 1

Well, but still, you you for an iPhone, you need a new a new either you need the current generation iPhone or one generation back, the Pros. So you need a device. And with handset upgrade cycle in the forty ish month rate, you know, with a lot of people owning devices that four, five, six years, seven years old, if they want to do AI, they need a new device. It's the people who are frequently updating who don't need a device, but they get one anyway. But coming back, the bigger question is, what if devices are no longer driving people into the stores?

12m21s Speaker 1

What is replacing phones as the driver of retail traffic if devices are no longer doing the trick because devices are becoming boring?

12m32s Speaker 0

That's a big question.

12m33s Speaker 1

That is a huge strategic question that we're also looking at it. We're spending an exorbitant amount of time and sample on our surveys to try and figure that out. Gonna be very fascinating.

12m46s Speaker 0

I think it'll be fascinating. The other thing I would say is when you look at the last couple dips we've seen with the economy assuming, you know, there is a recession or eventually there will be one, right? The government response actually matters a lot too, right? So there's very, very different ways the industry responded to the financial crisis versus COVID, right? Financial crisis, there was a major shift away from postpaid into prepaid for a three year time period.

13m12s Speaker 0

Whereas with COVID, you know, everybody kind of got backstopped and it didn't make as big of a deal from a postpaid prepaid perspective.

13m21s Speaker 1

And in neither one of the cases did the politicians get rewarded for what they did or didn't do, right?

13m29s Speaker 0

Right.

13m29s Speaker 1

During the financial crisis, there was a change in government and in the aftermath of COVID, where basically whether it was nothing and we had massive unemployment, but no inflation. And now with COVID, there was massive stimulus and with it came inflation, and there was a change of government as well. So it's like, damn if you do, damn if you don't. The lesson is avoid a recession, because voters say they wanna have change, but one change that they don't want is the change from a booming industry into a recessionary industry. That's the one change that they don't want, no matter what they say.

14m10s Speaker 0

Well, on that cherry note, I think that's a good place to stop it. Well, talk to you next week.

14m14s Speaker 1

Talk to you next week.