EFTA01385480.pdf

3 January 2018 HY Corporate Credit HY Multi Sector.Media. Cable & Satellite Telecom, Pay-TV, and Satellite Outlook Anthony Kiernan, (+1) 212 250-2587, [email protected] James Gilson. (+1) 212 250-6336, [email protected] Wireless: Overweight Relative to the 06 Index If we had predicted it (which we didn't) no one would have believed it anyway. Everything seemed to be lining Consolidation seemed to be storing a lot of pent up momentum, with carriers locked out of talking to each other after years of successive spectrum auctions up perfectly /ors tsunami-lee and FCC-imposed quiet periods. With the most recent auction concluding in wave of consolidadon and January 2017 and a Republican in the White House planning to re-boot the convergence M&A trades in FCC and DOJ, it seemed that a wave of telecom M&A was imminent, right? 2017: Nopa Presented with the Wrong. The perception was that Sprint and T-Mobile were going to merge and opportunhy tolo/, DT/TMUS in e that it was going to set off a wave of intra•sector and multi-sector convergence 4-to-4 combination dee deals. Fueling this view was the perception (also proven wrong) that SoftBank was looking for the exit door in Sprint. The reality was that even though SoftBenk and Sprint chose to SoftBank and Sprint held countless discussions over many months with stay single and go k alone for the Deutsche Telekom and T-Mobile USA (which has been widely disclosed in the time being. press) and even with the press reporting that Deutsche Telekom made a last- ditch offer to SoftBank to try to save the deal, SoftBank's response was to essentially "double-down" by deciding to keep Sprint independent, increase its CapEx spending, and raise its stake in Sprint, nominally, to 85%. So much for wanting the exit door. With Sprint emboldened to continue being an aggressor trying to win share in the market, we expect competition to remain elevated for the foreseeable The tower seaor appears to be future (although we also believe rationality in pricing will prevail). The raised heading into a periodofLeaved competitive environment combined with the highly anticipated arrival of 5G in in the industry as consolidation the next few years (mobile standards likely in 2019 and deployment in 2020), is hasn't materiaraedand Sprint expected to create a boon in wireless CapEx over the next couple of years. (whkh egged an apex) has a especially considering the amount of fallow spectrum (particularly at DISH - more on that later) still needing to be built out, which all bode well for both renewed focus on accelerating macro tower companies as well as metro fiber players. capitalinvesenent Network and Spectrum: Each of the four nationwide carriers have significant projects they're working on to maintain existing and create new competitive advantages. Sprint has been the most vocal recently about significantly increasing CapEx over the next two years in order to improve coverage via macro tower expansion (a few thousand towers) as well as utilize Massive 2018 appears poised to dearer MIMO and small cell densification to harness the power of its unique 2.5 GHz kernsing leek of wireless spectrum. T-Mobile won 31 MHz of 600 MHz spectrum in the broadcast apex Intensity - porde* &Men incentive auction that it has begun to roll out in 2017, but will more by Sprint's recent basest aggressively roll out in 2018. AT&T has 20 MHz of 700 MHz (FirstNet) and 40 Overall posit*" for underlying MHz of AWS-3 / WCS spectrum that will start to be built-out in 1018. The tower sector growth. biggest benefactors from those 3 build-outs are the Big-3 macro tower guys (AMT, CCI, and SBAC). Verizon's focus on getting a head start in 5G via fixed wireless and fiber is most likely to positively impact the small cell / metro fiber specialists which include CCI and ZAYO. Deutsche Bank Securities Inc. Page 207 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0086766 CONFIDENTIAL SDNY_GM_00232950 EFTA01385480