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The Convergence of Networks
Craig [email protected]
(212) 519-0021
WiFi Now
April 19, 2017Tysons Corner, VA
A Wireless geometry proof
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1) With the coming advent of 5G, wireless networks are going to become denser and denser, with cell sites having smaller and smaller radii, each underpinned with a wired backhaul connection.
The Convergence of Networks
2) As wireless network density rises, wireless networks will therefore begin to look more and more like wired networks.
3) Meanwhile, traditionally wired networks like Cable’s are increasingly accessed by wireless devices, and via wireless interfaces like WiFi. Wired networks will look more like wireless ones.
THEREFORE: The distinction between wired and wireless networks will disappear.
A wireless geometry proof:
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4) As wireless networks densify, underlying wires will become the single most important part of the cost structure.
The Advantage of Wires
5) As wires begin to dominate the cost structure, he who has the densest wired network will win.
6) Cable has the densest wired network.
THEREFORE: Cable’s infrastructure will ultimately win in wireless. Just as it has already won in broadband.
5G will likely be limited to urban markets… and therefore a lot less of the population than you might think
Percentage of U.S. Population by Density
Source: FCC, MoffettNathanson estimates and analysis6
Example:10%ofthepopulation liveson landwithadensitygreaterthanorequalto10.6Kpeoplepersquaremile(byCensusTract)
Leverage ratios as-reported range from 2.2x to 4.2x…
2016 Net Debt to EBITDA, As-Reported
7Source: Company reports, MoffettNathanson estimates and analysis
…but debt levels are understated by the exclusion of operating leases and pension/OPEB costs
Adjustments to 2016 Net Debt for Leverage Ratio Calculation
8Source: Company reports, MoffettNathanson estimates and analysis
Total debt including these obligations is dramatically higher
Adjusted 2016 Total Debt (Current, Long-Term, and Adjustments)
9Source: Company reports, MoffettNathanson estimates and analysis
“Actual” leverage is dramatically higher than it initially appears… wireless operators don’t have the balance sheet capacity for
massive wired buildoutsYear End 2016 “Real” Leverage Ratios
10Source: Company reports, MoffettNathanson estimates and analysis
Dotted lines mark as-reported leverage ratios. Net debt to EBITDA is pre-tax; however, the tax benefits associated with pension and healthcare contributions are substantial, and therefore worth considering. If net debt were reduced by the undiscounted size of this tax benefit, adjusted leverage would fall to 3.3x for Verizon and 3.3x for AT&T.
Enter Comcast…
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20 MHz of 600 MHz broadcast spectrum (?) for coverage layer
Longer Term Strategy Evolves from MVNO to Hybrid MVNO/MNO
Out of home WiFi (evolving to 5 GHz LTE-U or 28 GHz 5G?) for capacity layer
Outsource mid-band spectrum to Verizon… MVNO evolves to “in-region roaming”
Joint venture with Charter for national footprint?
A Few Predictions
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Cable will not buy a wireless operator
Convergence of Networks will Drive M&A
Verizon won’t be able to buy Charter… but will increasingly move into Cable’s orbit
Sprint and T-Mobile will attempt to merge… but will be long-term disadvantaged
Dish Network odd man out?
Independence of Research.
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This Report has been prepared for distribution to only qualified institutional or professional clients of MoffettNathanson LLC. The contents of this Report represent the views,opinions, and analyses of its authors. The information contained herein does not constitute financial, legal, tax or any other advice. All third party data presented herein wereobtained from publicly available sources which are believed to be reliable; however, the Company makes no warranty, express or implied, concerning the accuracy orcompleteness of such information. In no event shall the Company be responsible or liable for the correctness of, or update to , any such material or for any damage or lostopportunities resulting from use of this data.
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