The Fates Of Smith Micro (SMSI), Sprint, T-Mobile, & Charter Are Intertwined

Long-time readers should note some significant changes in how I communicate in the public domain. The primary purpose of this forum is now to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

Accordingly, this document should not be construed as an endorsement or recommendation of the companies or securities discussed herein. I am not an investment advisor and this is not an investment thesis. It is merely one part of the story, which I present for debate in hopes of determining all risks and upside potential. The disclosure at the end of this piece is critical to understanding the content of this document. Further, I frequently trade my positions and may buy, sell, or short the securities mentioned herein at any time, regardless of the facts or perceived implications of this article.

 

With all the chatter about Sprint’s renewed talks with T-Mobile, Trent Welsh stepped forward with an intriguing article on what might really be transpiring. It’s well known that Masayoshi Son, the founder and CEO of SoftBank (which owns about 85% of Sprint) has a 300-year vision. Sprint is an important asset in that vision.

This is why talks with T-Mobile have continually gone nowhere. Son seeks substantial power over the combined entity (to enable continued progress toward his vision).

This has an impact on our investment in SMSI. Here’s why…

Barring a change of heart, one of two thing will happen:

1. T-Mobile will acquiesce to Son’s wishes (albeit at a price), making Sprint the controlling entity. If that happens, SMSI’s marquee customer will instantly become 2.5x larger with commensurate implications for SMSI’s opportunity there. In that event, the shares should rise dramatically.

2. Talks break down again and SoftBank sets its sights on Charter Communications. Presumably, this would have no impact on SMSI, positive or negative.

T-Mobile currently uses the same solution that Sprint replaced with SMSI… and SMSI has a long history with T-Mobile. It’s safe to say that talks have already occurred regarding SMSI’s product.

But that doesn’t mean that T-Mobile will automatically follow Sprint’s lead and switch to SMSI. it all depends on T-Mobile’s objectives. T-Mobile could choose to 1) consolidate around the older solution, 2) consolidate around the SMSI solution, or 3) keep both solutions in place for a prolonged period to see how the newer SMSI solution fares.

Personally, if T-Mobile wrests control of Sprint from SoftBank, I view #3 as the most likely scenario. The low-hanging fruit in a Sprint / T-mobile marriage is in consolidating their networks and spending. Combining smaller pre-existing programs are not likely going to be a priority, especially considering the upfront money, effort, and bandwidth required.

This won’t be as much of an issue if SoftBank gets control over the combined entity. The SMSI solution is viewed by Sprint as a strategic means of locking in customers and increasing ARPU.

Accordingly, it would stand to reason that they would simply leverage their existing transition team to extend the transition to T-Mobile customers. The fact that they’re using the same legacy solution would make this process relatively easy (and quickly pay for itself in the form of headcount reductions). Conversely, forcing Sprint customers to switch back to the older T-Mobile solution (immediately after being switched to the SMSI solution) would serve no strategic purpose and prove to be a PR headache.

Just my two cents.

 

Coming Up: Investigating Why SMSI Might Be A Ten-Bagger

 

More Research:

 

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Disclosures / Disclaimers: I am long SMSI. However, this is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this article.

I am not a financial advisor. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this article.

I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter.  Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.

I wrote this article myself, and it expresses my own opinions. I am receiving no compensation for it, nor do I have a business relationship with any company whose stock is mentioned in this article. The information in this article is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

The primary purpose of this blog/forum is to attract new contacts with professional industry expertise to share research and receive feedback (confirmation / refutation) regarding my investment theses.

12 thoughts on “The Fates Of Smith Micro (SMSI), Sprint, T-Mobile, & Charter Are Intertwined

  1. Wow, what a great post. Sadly nothing for me to contribute or collaborate on SMSI. But your coverage is very convincing and getting more and more retail buyers like myself to load up!

    Appreciate the honesty in your other post as well showing your buys, it really adds to your credibility (not that you weren’t credible) and belief in the company.

    Liked by 1 person

  2. Of the three options 1 would be most bullish, 2 potential no impact unless involved with charter rumor, 3 could really go either way and introduces some more risk. In my personal experience, the controlling parties platforms usually win out unless, the acquired’s is bought specifically for that purpose or the product is clearly superior.

    I exited FUSZ today at 2.85 and started a position in SMSI at 2 flat. FUSZ was the riskiest thing I’ve done in my whole two years, didn’t want to get caught being greedy on a purely speculative trade. I’m now at +150% on the year. I’m hoping SMSI will be a set and forget relative to the other stuff I’ve been doing. I can see the potential. I’m going to do some more research on the other players. I did see that Sprint appears to be ahead of T-mobile in the 5-g rollout.

    Like

  3. Hi Mark,

    I re-traced back to this article today after more news regarding what seems to be a very soon-to-be Sprint and T-Mobile merger. I’m looking to understand what the impact of this deal might be, and I’m going to be looking at it from a worst case scenario to understand exactly what, if any risks there are that come from this and staying invested in SMSI.

    Let’s say the merger gets consummated and Deutsche Telekom becomes the controlling entity of this deal after the fact. You mentioned this in your theses:

    “T-Mobile could choose to 1) consolidate around the older solution, 2) consolidate around the SMSI solution, or 3) keep both solutions in place for a prolonged period to see how the newer SMSI solution fares.”

    Maybe this is stored somewhere on the internet and I’m crummy at my research, but I couldn’t seem to find any information on any family protection solutions that T-Mobile uses that is similar to Safe & Found. I called a technical representative at T-Mobile earlier to confirm, asking if they had a software that resembled Safe & Found at Sprint and they said the only way that they tracked family phones was by calling their own tech support.

    I’m more inclined to believe what you say, so if you would be able to share the info of what that app is that would be fantastic. I also noticed you mentioned that T-Mobile and SMSI have a longstanding relationship. Would you care to elaborate on that some more? I found out that T-Mobile is using a software from SMSI called “WebConnect”. It seems to install the latest software for mobile broadband devices (hot spots, and Wi-Fi USB sticks). Do you know of any other software deals that they are involved in?

    I will continue scouring the internet for more information, but I’m thinking you probably have seen this information and could educate me more on the matter. I’m trying to grasp the full picture here, but I’m just trying to get some more details on your above argument because the changes of the 2 carriers merging are a lot closer than they have ever been.

    Like

    1. This might be the best post I’ve seen all week. Finally, someone willing to do the proper homework, share it, and then ask if they’ve missed anything.

      Thank you!

      To answer your question, your homework has revealed almost all of the low hanging fruit. The only big thing I think you missed is T-Mobile’s FamilyWhere app.

      Google that you will find what you’ve been looking for. Cheers!

      Liked by 1 person

      1. Can anyone verify if this is correct?

        A small detail, but it appears S&F would not be as good for customer retention as the FamilyWhere app because only one ‘parent’ is required to be with Sprint on S&F and the other family members could be on different networks, unlike T-Mobile (see SPRINT & T-MOBILE below). Phone calls to customer service produced no further information or clarification. I imagine this could affect a companies willingness/eagerness to adapt S&F.

        SPRINT
        “Add your family members no matter what device OR NETWORK THEY’RE ON. That’s right, this works on ALL devices and OUTSIDE OF THE SPRINT NETWORK” (caps added except ‘all’)
        (From https://www.sprint.com/en/shop/services/safety-and-security#tab-safe-and-found)

        T-MOBILE
        “With T-Mobile FamilyWhere® you can locate any phone ON (caps added) the T-Mobile 4G/LTE network.”
        “Quickly and accurately locate phones ON YOUR ACTIVE ACCOUNT.” (caps added)
        (both from https://support.t-mobile.com/docs/DOC-4258)

        Cheers

        Like

  4. Appreciate it Mark,

    Very humbling to hear that from someone I consider a mentor in the investment world.

    After checking out FamilyWhere, my thoughts are that at this point there will be a lot of weight on what the terms of the merger are (if it goes through), and how the first quarter results for SMSI look coming up in the next couple of weeks.

    Like

    1. According to my data (and a reliable outside source for confirmation) I believe that somewhere around 25% of the Sprint customer base has already converted to the SMSI product. Very little of this will show up in the Q1 results, but should be discussed on the conference call. 😎

      See my piece on Sprint/T-Mobile for my thoughts on the potential merger, but in short, I don’t see relatively small programs like this being impacted by a combination anytime soon. First of all, any combination will take several quarters to complete. Then, they will attack the low hanging fruit (their network and associated costs). Then, they will reconcile any possible efficiencies at the lower levels, which actually holds the promise for the SMSI product to replace the T-Mobile product (which is the same product that Sprint replaced with SMSI)… but again, even if that happens, it won’t be for several quarters.

      Like

    1. Breaking News — I think it’s going down.

      I JUST got off the phone with one of my contacts. All of the top Sprint people are locked in meetings all afternoon. I’ve heard that it won’t matter who gets control… Safe & Found isn’t expected to be impacted for at least a year, at which point there’s a good chance the combined organization consolidates around Safe & Found.

      Liked by 1 person

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