YOU ARE AT:CarriersSprint battle against Verizon, AT&T, T-Mobile continues

Sprint battle against Verizon, AT&T, T-Mobile continues

Sprint may be the market’s No. 4 carrier, but looks to regain competitive position with help of Softbank

Sprint may no longer be the domestic market’s No. 3 carrier, and may have at least for a while lost some support from parent company Softbank, but that does not seem to be hindering its ongoing battle to turn around operations.

In connection with this week’s release of its first fiscal quarter results, Sprint’s management provided new details on its plans to stem losses across some customer segments, bolster network performance and continue to trim operating expenses. The news received a boost from Softbank Chairman Masayoshi Son, who noted that while he had been disillusioned with his U.S. investment, he was now back on track in supporting Sprint’s turn around plans.

While its Q1 results were not quite strong enough for Sprint to hold off T-Mobile US in the race for the market’s No. 3 position, the carrier did post some positive numbers that provided hope to investors. One of the more significant numbers was a dramatic dip in postpaid customer churn, which Sprint’s management said continued to build momentum into the early part of its fiscal Q2.

Sprint CEO Marcelo Claure said he expects the carrier to report positive postpaid “phone” growth in Q2, turning around what has been a sore point for the carrier. Claure’s confidence was based on the carrier’s well-received rate plans and improvements in network quality, which were at the core of Sprint’s customer defection crisis.

In looking to bolster its network, Claure noted Sprint has started to roll out 40 megahertz of support from its vast 2.5 GHz spectrum holdings to support LTE services in a handful of larger markets. Those moves are expected to double capacity and speed, with early testing showing peak speeds of up to 135 megabits per second. Consumers will need a compatible device to witness such speeds, with Sprint stating it has seven devices on the market, including the Samsung Galaxy S6.

While the speeds announced seem impressive, they are only slightly more than what the former Clearwire was seeing 5 years ago with similar spectrum support.

Sprint did say it plans to expand 2.5 GHz support to a “majority” of its existing sites, which continues the uncertainty around just how extensive the carrier planned to use its higher-band spectrum holdings. Sprint had initially said it planned to install 2.5 GHz support on all of its cell sites, only to then state it would likely be more prudent in areas where the band’s propagation characteristics were not ideal.

One area where the 2.5 GHz band is sure to find a welcome home is on Sprint’s planned small cells deployment, which the carrier said will include tens of thousands of sites over the next three years. Claure said those small cell plans are to include both existing vendors as well as “embracing innovative new company that brings unique products and services to the table.”

Analysts have expressed some concern over the financing required to support the network expansion, which Claure countered by explaining Sprint’s work with Softbank and “other partners” to potentially establish a leasing company designed to help finance its network deployment. The move would mimic more established work on setting up a leasing arm to deal with device financing and leasing activity that is expected to be finalized in the coming months.

“As you probably know, one of our biggest uses of cash is the sales of devices to customers, particularly under leasing where we only receive the monthly payments over the lease term until recovering the residual value at the end,” Claure said. “Through this facility, Sprint is expected to receive proceeds equal to the net present value of not only lease payments but also the residual value.”

Claure stated that these moves, along with continued work on reducing operating expenses, would allow Sprint to resist the need to raise additional capital through the public debt or equity markets, or to sell spectrum assets for the “foreseeable future.” Sprint for years has been rumored to be seeking a buyer for some of its 2.5 GHz spectrum holdings, which in some markets is in excess of 160 megahertz.

As for the cost of these network upgrades, outgoing CFO Joe Eutenuer said the carrier was on track to spend $5 billion this year on capital expenses, with less than $15 billion expected to be spent over the next three years.

Sprint earlier this year lined up $2.1 billion in financing from Nokia Networks, Samsung, Alcatel-Lucent and a Canadian financier to bolster its 2.5 GHz plans. The carrier followed that up with a $1.5 billion public offering of notes.

Softbank support

Much of Sprint’s planned turn around is dependent on the continued support of parent company Softbank, which spent $21.6 billion in 2013 for a controlling stake in the operator. Softbank’s Son at that time was also angling at acquiring T-Mobile US in an attempt to combine those operations into a stronger No. 3 operator to battle Verizon Wireless and AT&T Mobility, but was eventually undercut by regulator pressure.

Son admitted that Sprint’s recent performance woes had dimmed his view on the U.S. operator, but that he was now back on board with bolstering Sprint’s operations.

“So as you might have imagined, when I entered into the U.S. market, I had a plan to have a consolidation in the industry but that’s no longer the case,” Son said. “So I lost the confidence for some time. However, the last few months I am totally refocused to help Marcelo and the team have the historical turnaround of the company, and I’ve been working – very, very involved especially on the networks side. I have been involved with my engineers almost every night from 10 p.m. up to 2 a.m., almost every night and designing the next-generation network and looking at the opportunities to improve the [operating expense].”

Son boosted his expectations for improving Sprint’s network by reiterating his dim view of current U.S. mobile broadband networks, going as far as to say they were “not something that you should be proud of,” and that networks in Japan were “much more superior.” However, Son’s position in that argument is hindered somewhat by reports on Japan’s mobile broadband networks.

Outside of time and experience, Son didn’t state a specific amount Softbank planned to invest into Sprint towards network improvements. Analysts expect much of Softbank’s near-term investment in Sprint will come as part of the separate leasing companies being set up to handle device and network funding.

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