LAWLER, METZGER, KEENEY & LOGAN, LLC 1717 K STREET, NW SUITE 1075 WASHINGTON, D.C. 20006 REGINA M. KEENEY PHONE (202) 777-7700 gkeeney@lawlermetzger.com FACSIMILE (202) 777-7763 REDACTED – FOR PUBLIC INSPECTION September 25, 2018 Via Electronic Filing Marlene H. Dortch, Secretary Federal Communications Commission 445 Twelfth Street, SW Washington, D.C. 20554 Re: Ex Parte Notice: Applications of T-Mobile US, Inc., and Sprint Corporation for Consent to Transfer Control of Licenses and Authorizations, WT Docket No. 18-197. Dear Ms. Dortch: On September 21, 2018, Brandon “Dow” Draper, Chief Commercial Officer; Vonya B. McCann, Senior Vice President, Government Affairs; Charles McKee, Vice President, Government Affairs (all of Sprint Corporation (“Sprint”)); and the other representatives of Sprint, T-Mobile USA, Inc. (“T-Mobile”), and their controlling shareholders (collectively, “Applicants”) listed in Attachment A provided a presentation in two meetings: one to David Lawrence, Director; and the other members of the Federal Communications Commission’s (“Commission’s”) T-Mobile/Sprint Task Force listed in Attachment B; and the other to Umair Javed, Legal Advisor to Commissioner Jessica Rosenworcel. During this presentation, the Applicants discussed and answered questions regarding the deck submitted herewith at Attachment C. This filing contains information that is “Highly Confidential” pursuant to the Protective Order filed in WT Docket No, 18-197. Accordingly, pursuant to the procedures set forth in the Protective Order, a copy of the filing is being provided to the Secretary’s Office. In addition, two copies of the Highly Confidential Filing are being delivered to Kathy Harris, Wireless Telecommunications Bureau. A copy of the Redacted Highly Confidential Filing is being filed electronically through the REDACTED – FOR PUBLIC INSPECTION Ms. Marlene Dortch September 25, 2018 Page 2 Commission’s Electronic Comment Filing System. Pursuant to section 1.1206(b)(2) of the Commission’s rules, 47 C.F.R. § 1.1206(b)(2), this ex parte notification is being filed electronically for inclusion in the public record of the above-referenced proceeding. Respectfully submitted, /s/ Regina M. Keeney Regina M. Keeney cc: David Lawrence Kathy Harris Charles Mathias Catherine Matraves Michael C. Smith Dana Shaffer Matthew J. Collins Pramesh Jobanputra Jonathan Henly Weiren Wang Murtaza Nasafi Ben Freeman Robert Chen Chris Smeenk Linda Ray Kirk Arner Thuy Tran Joseph Wyer Monica DeLong Darrel Pae Sara Mechanic Morasha Younger Stacy Ferraro Patrick Sun Jacqueline Tello Robert Pavlak Joel Rabinovitz William Dever REDACTED – FOR PUBLIC INSPECTION ATTACHMENT A MEETING ATTENDEES ON BEHALF OF SPRINT, T-MOBILE, DEUTSCHE TELEKOM, AND SOFTBANK GROUP CORP. For Sprint Brandon “Dow” Draper Vonya B. McCann Charles McKee Steven C. Sunshine of Skadden, Arps, Slate, Meagher & Flom LLP Matthew P. Hendrickson of Skadden, Arps, Slate, Meagher & Flom LLP Regina M. Keeney of Lawler, Metzger, Keeney & Logan, LLC For T-Mobile Luisa Lancetti Edward “Smitty” Smith of DLA Piper Mark W. Nelson of Cleary Gottlieb Steen & Hamilton LLP 1 For SoftBank Group Corp. John Flynn of Jenner & Block LLP For Deutsche Telekom Reinhard Wieck 1 Mr. Nelson attended the meeting with the Task Force but did not attend the meeting with Umair Javed. Otherwise, attendance of both meetings was identical. REDACTED – FOR PUBLIC INSPECTION ATTACHMENT B FCC MEETING ATTENDEES David Lawrence Kathy Harris Charles Mathias Catherine Matraves Michael C. Smith Dana Shaffer Matthew J. Collins Pramesh Jobanputra Jonathan Henly Weiren Wang Murtaza Nasafi Ben Freeman Robert Chen Chris Smeenk Linda Ray Kirk Arner Thuy Tran Joseph Wyer Monica DeLong Darrel Pae Sara Mechanic Morasha Younger Stacy Ferraro Patrick Sun Jacqueline Tello Robert Pavlak Joel Rabinovitz William Dever REDACTED – FOR PUBLIC INSPECTION ATTACHMENT REDACTED FOR PUBLIC INSPECTION Proposed Merger of T-Mobile and Sprint Sprint Business Presentation to the FCC Dow Draper September 21, 2018 HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION Confidential Treatment Requested 1 Sprint Faces Substantial Challenges That Limit Its Effectiveness • Despite achieving substantial cost reductions and stabilizing its financial position, Sprint has not been able to turn the corner with respect to its core business challenges • Sprint tried a more localized approach in an attempt to drive growth, but continues to face declining subscribers and revenue • Sprint has attempted to position itself as a value leader with aggressive price promotions, but those efforts have not achieved sufficient growth or churn reduction to offset their cost • Given Sprint's network investment needs, negative network perception, and declining share and service revenues, it will continue to face substantial business challenges • The transaction will create a much stronger competitor with the scale and resources to disrupt AT&T and Verizon HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 2 > Historical Decisions and Outcomes Have Led to Current Challenges I. Sprint report0 • Sprin't. • �N:Xl"EL 2005 r a Q4 loss of nearly $30 billion due to large writedown related to the Nextel merger L • Sprint loses 2 million subscribers in a single quarter after shutting down iDen network _J 2008 2012 ---i1 '-2010-2014 • Sprint and Next� el 1r. Sprint forms JV Network Vision merge in with Clearwire upgrade to transaction and elects to multimode for va I ued at $35 pursue 4G on 3G/4G. Shutdown billion WiMax of iDEN • By 2012 Sprint • "Rip and replace" had losses of causes network more than $37 disruption and billion related to churn the deal L HIGHLY CONFIDENTIAL TEXT IGHLIGHTED _J L 2013 i • WiMax Sprint falls from I shutdown third to fourth in announced total wireless • Plans for connections "'12 K 2.5 • Sprint pursues GHz sites Monopole plan to cancelled save on network due to costs budget _J _J 2014 I. Sprint lays offI more than 2,000 employees. • Additional rounds of layoffs follow in 2016 and 201s L Sprint fl!l� Uo _J I. I. Monopole plan I L L 2015 I.Forgo 600MH0 auction due to lack of funds and lead times incompatible with urgent network needs L REDACTED - FOR PUBLIC INSPECTION abandoned for more traditional build; $180M write off in abandoned sites • 5G/mMIMO announced _J 2018 2017 • FY 2017 is fir;l profitable year in 11 years J 1. L Sprint has a current net debt of "'$32 billion _J 3 1 _J > Sprint's Network Faces Severe Challenges • Sprint fl!l� Uo Sprint's LTE Network footprint covers a much smaller geography and significantly fewer POPs than other national carriers Sprint (yellow) vs. T-Mobile (magenta) HIGHLY CONFIDENTIAL TEXT IGHLIGHTED Sprint (yellow) vs. AT&T (blue) REDACTED - FOR PUBLIC INSPECTION Sprint (yellow) vs. Verizon (red) 4 Sprint Quality of Experience (QoE) Reflects Network Challenges • QoE is a score on a 1-to-5 scale and reflects network experience • Concept is to boil down user’s experience into one number • Data factors are weighted more heavily than voice • Calculated for every postpaid subscriber, every month • QoE score of 3 is considered a minimally acceptable network experience – anything below a score of 3 can be considered a poor network experience. Example for SD video streaming, QOE of < 3 will mean speeds of < 2 Mbps • Customers with low QoE scores are much more likely to churn HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 5 Network Shortcomings Limit Our Ability to Attract and Retain Subscribers • Coverage and consistency challenges impact both network performance and customer perception • Sprint's network perception lags far behind the other carriers, making it very difficult to sell our network • Poor network experience is a leading cause of Sprint’s subscriber churn HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 6 Sprint Struggles to Retain Its Base and Attract New Subscribers • • • Sprint As a result of our network performance limitations and perception, Sprint has consistently had the highest churn in the M� industry and failed to retain its subscriber base Sprint is the only carrier with rising churn over the last several years Postpaid customer survivability over 18 months is only we are losing a substantial portion of our base HIGHLY CONFIDENTIAL TEXT IGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 7 Uo Sprint Struggles to Retain Its Base and Attract New Subscribers • In addition to industry-high churn, Sprint has consistently had the lowest share of gross adds and failed to attract new subscribers HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 8 Sprint Is Also Challenged In the Prepaid Segment • In prepaid, Sprint has consistently been #4 in both share of subscribers and SoGA • AT&T and Verizon both have strong wholesale relationships with TracFone, the largest Prepaid competitor – only a minimal portion of TracFone subscribers are on Sprint’s network • AT&T is steadily growing in prepaid, both with its branded offering and with its very successful Cricket brand HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 9 As Sprint’s Subscriber Numbers Fall, So Too Does Its Service Revenue • Sprint is becoming a smaller company and is actually losing scale, whereas achieving sustainable growth requires Sprint to increase scale Sprint SEC 10-K Filings and Sprint analysis HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 10 Sprint Transformation Focused on Cost Cutting • Sprint has eliminated about $10 billion in annual costs, allowing it to boost near-term profitability • But cost cutting is nearing its limit and becoming more difficult HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 11 Sprint is Unable to Consistently Make Necessary Network Investments • Sprint has not been able to invest sufficient capital to achieve network performance necessary to attract and retain enough subscribers to improve its scale • Sprint can periodically increase CapEx spending to fund projects, but cannot sustainably spend enough to close the network performance gap with AT&T and Verizon HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 12 Sprint’s Scale Imposes Significant Operating Cost Disadvantage • Despite cost cutting, Sprint still must spend significantly more per subscriber, per month, to support its wireless offerings, illustrating scale disadvantages from low subscriber share HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 13 Sprint Also Lags Behind the Industry in EBITDA and FCF • Sprint accounts for only about 12% of industry EBITDA, lagging behind AT&T and Verizon, which account for about 30% and 45%, respectively • Although Sprint has recently had positive cash flow as a result of significant cuts to CapEx, it lags behind AT&T and Verizon, both of which ended 2017 with more than $2 billion in free cash flow Competitive Results Summary Jan – Mar ’18 (May, 7, 2018) Slide 62 HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 14 Sprint's Performance Metrics Show It Still Faces Significant Challenges • Net Income- FY2017 was the first profitable year for Sprint in eleven years, as a result of tax treatment and lower network CapEx spend • Free Cash Flow- marginally positive, but negative for five of the last seven years • Market Share- declined as Sprint underwent painful network modernization and slipped from #3 to #4 Sprint fl!l� Uo Losing subscribers who "step away" rather than "step up" from promotional pricing • Share of Gross Adds- Sprint has lowest postpaid SoGA and is #4 in prepaid SoGA, preventing it from meaningfully increasing subscriber base • CapEx- Sprint has been unable to invest consistently in its network, hampering its ability to market its network effectively • High Levels of Debt- Sprint carries over $40 billion in debt, requiring the company to balance debt payments with the need to invest in the network HIGHLY CONFIDENTIAL TEXT IGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 15 Sprint Options and Strategies As Standalone Company - Localization • Facing declining share at the national level, Sprint developed a strategy to focus on local areas to drive growth • “Localization 2.0” strategy involved increases in local marketing, network spend, and retail distribution in specific cities, but the program has not met targets needed to support investments • Program designed to drive SoGA and churn improvements to grow base share through coordinated network, distribution, sales and marketing efforts in selected markets • 10 geographies initially identified, reduced to 6 due to lack of resources: Chicago, Cleveland, Cincinnati, Orlando, Miami, Dallas-FW (only elevated marketing investments, no distribution or network enhancements) HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 16 Sprint Options and Strategies As Standalone Company - Promotions • Sprint has attempted to position itself as a value leader through Unlimited offers and other promotions, to limited effect • Sprint has attempted to attract customers with discounted promotional pricing, but network quality is critical to keeping subscribers • While Sprint has struggled to improve perception of its network, its business cases have assumed that promotions would lure customers, and that Sprint would retain them • Recent focus for Sprint has been heavy discounts for multi-line plans, but even with these promotional efforts Sprint remains last in postpaid SoGA and has the highest churn • However, while these promotional efforts have attracted short term attention, they have failed to drive sustained subscriber growth • Due to challenging economics of promotional pricing, Sprint recently increased rate plans HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 17 Recent Net Add Growth Driven By Promotional “Free” Lines HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 18 Pricing Promotions Have Not Led to Share Gains • Despite promotional efforts that have led to a significant drop in ARPU, Sprint has continued to suffer a decline in subscribers • Promotional moves, such as low introductory rate plans and free lines, yield short-lived improvements in net adds but have not provided sustained growth HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 19 Pricing Moves Have Not Led to Profitable Growth • At the end of 2017, Sprint Finance assessed the impact of Sprint’s aggressive pricing and concluded that it was not resulting in adequate customer growth or retention to pay for itself HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 20 These Realities Have Led Us to Raise Prices Sprint fl!l� • Recently announced revamp of our pricing plans reflects elimination of aggressive zero-pricing for lines 35 and raises prices on both absolute and value-adjusted basis. OLD Unlimited Freedom Single Tier/HD Video HIGHLY CONFIDENTIAL TEXT IGHLIGHTED NEW Unlimited Basic Promo Pricing Initial Step-Up Pricing SD Video Line 1 $60 $60 $60 Line 2 $40 $40 $40 --- Line 3 $0 $15 $20 +$20 (+$5) Line 4 $0 $15 $20 +$20 (+$5) Line 5 $0 $15 $20 SD/HD HD HD Tethering 10GB 10GB NEW Unlimited Plus Change HD Video Change $70 +$10 $50 +$10 $30 +$10 $30 +$30 (+$15) +$20 (+$5) $30 +$30 (+$15) SD Inferior HD -- 500MB Inferior 15GB +SGS OR REDACTED - FOR PUBLIC INSPECTION 21 Uo Continued Promotional Efforts • Loss of subscribers from increased churn and "step outs" exacerbates Sprint’s scale disadvantages • Promotional efforts continue to be necessary to gain subscribers, but need to be focused • Short-term promotions are being tested (as opposed to lowering overall plan pricing), targeted at online and BYOD promotions • Even if promotions result in subscriber additions in the short term, key question is whether these subscribers will remain long enough to be profitable HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED REDACTED - FOR PUBLIC INSPECTION 22 No Obvious Path to Solve Key Business Challenges • • • Sprint needs to make significant investments in its network, but even with our business transformation and improved cost structure, our debt burden and lack of scale and profitability diminish our ability to simultaneously increase investment in our network and offer promotional pricing Sprint must focus on investing in its LTE and 5G networks; however, this requires cutting back on promotions and on pricing especially when they do not create profitable growth In the meantime, given the weak perception of the Sprint network and perceived value proposition, growth cannot be achieved while simultaneously charging higher prices. HIGHLY CONFIDENTIAL TEXT HIGHLIGHTED Reduced ability/incentive to invest in network and distribution Network shortcomings and poor perception High churn and inability to attract subs Poor cash flow and high, sub-scale cost structure Promotional activity required to fight subscriber reduction REDACTED - FOR PUBLIC INSPECTION 23