Sprint moves to LTE but at what cost? – Mobile World Live

Sprint moves to LTE but at what cost?

13 OCT 2011

It’s never a good idea for a publicly-traded company to hide detail from financial analysts, those people whose job it is to see through the company spin and evaluate a firm’s true value. Nevertheless, that is exactly what US operator Sprint was accused of attempting to do at its Investor Day last Friday.
 
The event served as a platform for Sprint to announce its long-awaited LTE migration plans, the culmination of its ‘Network Vision’ initiative aimed at streamlining its networks and regaining competitiveness with larger rivals AT&T and Verizon Wireless (both of which have already launched LTE).
 
Sprint came out fighting, promising an “aggressive” LTE deployment schedule that would achieve 277 million US population coverage within two years.  Furthermore, cell sites are to be upgraded to support multimode radios (3G/4G), offloading technology is to be deployed to alleviate traffic and its WiMAX business will continue to be supported with new handsets until at least the middle of next year, by which point Sprint’s first dualmode (CDMA/LTE) devices will appear.  
 
And then there’s the small matter of the iPhone, being rolled out by the operator for the first time from this month as part of a plan to curb postpaid subscriber losses.
 
So far so good, but how much will all this cost? It was a question analysts waited patiently to be answered (Sprint’s CFO was last to speak), but Sprint appeared to fudge the issue by flashing up a single slide that vaguely hinted at the alarming decline in liquidity over the next two years that the new strategy would invoke. And this was excluding the high costs of subsidising the iPhone, which reports earlier in the week had suggested could see Sprint losing money on the device for the next three years.
 
In the words of one analyst at the event, the Q&A then “got ugly” as senior management offered “responses so short and void of details that the CFO was actually laughed at.”
 
The accusation that Sprint was not being upfront about costs spooked investors, which sent Sprint shares down 20 percent on Friday amid fears that the operator’s new strategy will see it burn through cash over the next two years. More financing – and debt – will surely be required.
 
The issue served to highlight the harsh realities facing the US number-three. 
 
For one thing, Sprint has been forced to support multiple networks in recent years, including its iDEN PTT network and CDMA, plus (via its Clearwire affiliate) WiMAX. Its backing of WiMAX as its 4G technology of choice gave it a two-year head-start over rivals migrating to LTE, but it didn’t seem to count for much. Indeed, last week’s announcement could be seen as the beginning of the end of Clearwire, which saw its own share price plunge 32 percent after Friday’s news of the LTE move.
 
With a lot of different networks and spectrum holdings to untangle, Sprint’s new mantra – repeated several times last week – is "simplicity."  But this won't necessarily be simple – or cheap – to achieve.

The effort of supporting several networks alongside a shrinking subscriber base means that – compared to competitors – costs are higher but volumes are lower, one of the key reasons Sprint has lost ground in recent years.
 
In terms of subscribers, Sprint stated that the problem was gross rather than net additions. This, the operator claims, is evidence that its customer base is loyal, but that it is struggling to attract new customers.
 
This is where the iPhone comes in. Sprint hopes that the iconic device will serve as a loss-leader that will enable it to build market share at the expense of its rivals. But this is a big gamble, and – with Sprint yet to admit the costs involved – it appears a bet that most investors won’t be willing to make.
 
(Sprint's slides from the event can be viewed here)

Matt Ablott

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members