The collapse of the proposed merger between telecoms giants T-Mobile and Sprint does not shut the door for future consolidation in the sector.
Speaking to Citywire Global, Milburn said, while the merger is currently off the table, there is still an indication the deal could be brought back to life as the competition in the mobile sector intensifies in the United States.
He said: ‘It would have been hard to get past the Federal Communications Commission, as AT&T was blocked from buying T-Mobile US, although there were of course bigger market share issues there.’
‘Ultimately I still believe that Sprint and T-Mobile US will merge one day to create a third mobile player with enough scale to compete against AT&T and Verizon, but this may be some years away.’
The Sprint/T-Mobile merger fell through on August 6 and has subsequently seen French telecommunications provider Iliad upped its offer for a $15 billion takeover of T-Mobile US.
The move was designed to solidify Sprint’s position in the US mobile industry. While talks have stalled, Milburn said the biggest surprise in the scenario was the decision by Sprint to replace its CEO Dan Hesse with Brightstar founder Marcelo Claure.
Although Claure had already been affiliated with Sprint owner Softbank and its CEO Masayoshi Son, so Milburn said the move is understandable.
In bonds for the long haul
Even though both T-Mobile and Sprint shares lost a couple of percentage points after the deal collapsed, Milburn doesn’t see a change in his investment thesis, but rather looks at the bigger picture.
‘We have owned Sprint debt for many years now, long before SoftBank took a stake. The merger falling through does not massively impact our investment thesis,’ Milburn said.
Sprint had previously gone through a major overhaul of its network, which led to dissatisfaction in its customer base, mainly due to coverage holes. However, both companies are said to be improving their past service issues and T-Mobile US had posted its first net profit in a year in the second quarter.
‘Both Sprint and T-Mobile US are improving credits as they deal with past service issues, they are building out their LTE networks and look to lower churn and grow their customer base,’ Milburn said, who co-manages the Kames High Yield Global Bond Fund with Claire McGuckin.
‘It might now take longer for the credit improvement to come through, but we are in the bonds for the long haul anyway,’ he added.
Kames High Yield Global Bond A Acc EUR Hedged returned 27.3% in US dollar terms. Its benchmark, the BofA Merrill Lynch Eur Currency HY Const Hdg GBP, rose 40% over the same period.