Sprint continues to list in the waters of the domestic wireless space, caught between the winds and currents of needing to spend money to improve network operations, while at the same time trying to make money.
The carrier’s fourth quarter financial results showed that during the final three months of 2013, the money making currents were in control of Sprint’s direction as the carrier managed to trim operating losses to “just” $1 billion. However, those savings appeared to come at the expense of funding its much-needed network initiatives that continue to hamper the carrier’s operations.
Sprint’s management continually referenced the “pardon our dust” phase the carrier’s is going through as part of its Network Vision program. That initiative has the carrier’s basically replacing all of its legacy infrastructure equipment, a process that is impacting network quality. Analysts noted that Sprint’s capital expenditures came in around $1 billion lower than expected for the fourth quarter of 2013 and full year, which Sprint attributed to it hitting the peak of its Network Vision program.
Sprint CFO Joe Euteneuer countered that the carrier hadn’t slowed on network investments, adding that there was a focus to complete the network program, but to do so in a way to balance costs and expenses.
Sprint’s financial position was thought to have been somewhat solidified last year following Softbank’s $21.6 billion purchase of a controlling stake in the carrier. However, analysts have noted that Sprint continues to hit roadblocks in its network plans that have stretched its financial resources and further hampered its ability to compete on network quality. Sprint said it surpassed 200 million potential customers covered by its LTE network at the end of last year, but overall coverage continues to lag behind rivals. Sprint’s LTE network is also suffering in terms of speed as it has only 10 megahertz of spectrum to support services across most of its markets compared with at least 20 megahertz from rivals.
Sprint’s Spark program is expected to eventually turn the tide in terms of network speed, as Sprint will be looking to add support from its substantial 2.5 GHz spectrum holdings. Eutenuer noted the carrier remained on track to hit 100 million pops covered with its Spark program by the end of this year, a number that analysts feel it need to increase in order to gain any sort of marketing advantage.
Sprint warned that its operational challenges will continue through at least the first half of this year as it continues to struggle through its network upgrade program. Those struggles are expected to impact network quality with a resulting higher churn rate and loss of customers, which could be good news for rivals.
“During the construction phase, there is a period of disruption to our network service which will manifest itself in higher voice service drops and blocked calls,” Hesse explained. “Voice performance is very noticeable to customers, so heightened blocks and drops contribute significantly to churn.”
Sprint’s customer service issues were highlighted in a recent J.D. Power and Associates survey that showed the carrier pulling up the rear among its nationwide rivals in customer care. Sprint scored substantially lower than No. 3 T-Mobile US in the survey, reversing results from the previous year.
Sprint’s network deficiencies are also impacting its marketing efforts. Euteneuer explained that the carrier’s current marketing focus remained on its ”Framily” plans, which allow customers to bundle up to 10 lines under one account. This market segment has become increasingly competitive over the past month with rivals focusing on the multi-line plans, with some even willing to pay customers to switch carriers.
Sprint has refrained from engaging in the LTE marketing that its rivals are also pushing, though Eutenuer said the carrier is engaging in more localized network marketing efforts tied to the completion of Network Vision programs in those markets. Eutenuer defended the carrier’s current predicament by noting that the carrier is posting solid gross customer addition numbers, citing the higher levels of churn as what is keeping Sprint from posting stronger net additions.
Low-band spectrum focus
Sprint also remains focused on attaining more sub-1 GHz spectrum, which would likely include an aggressive push in the Federal Communications Commission’s planned 600 MHz incentive auction scheduled for mid-2015.
“We would consider, depending upon the availability and our financial wherewithal, we would consider adding low band spectrum,” explained Hesse. “But we haven’t reached any decisions yet.”
Besides the 600 MHz auction, Sprint could also look to pick up A-Block 700 MHz licenses to help bolster its current 800 MHz spectrum holdings. T-Mobile US made an aggressive move earlier this year for the 700 MHz space in a deal with Verizon Wireless where it picked up licenses in 21 of the nation’s top 30 markets covering approximately 158 million potential customers. Interest in the 12-megahertz, A-Block is expected to increase following an agreement between the FCC and AT&T to provide for interoperability across the lower 700 MHz band.
Sprint is currently sitting out the Auction 96 H-Block spectrum proceedings, despite the fact the 10 megahertz of spectrum up for bid is adjacent to the G-Block spectrum in the 1.9 GHz band powering its LTE network. The focus on “low-band” spectrum could also call into question Sprint’s aggressiveness in pursing spectrum in the AWS-3 band (1.7/2.1 GHz) that is set to go up for auction beginning later this year.
And then of course there is the continuing issue of a possible tie-up between Sprint and T-Mobile US. While many of the parties involved have said that consolidation outside of the nation’s two largest carriers – Verizon Wireless and AT&T – made sense, recently regulatory rumblings have not appeared favorable to a deal between the No. 3 and No. 4 carrier.
“I’ve said consistently, for some time, that I believe that further consolidation in the U.S. wireless industry outside of the big two, outside of AT&T and Verizon, because they’re still large, would be healthy for the competitive dynamic of the industry,” said Hesse. “It would be better for the country, and better for consumers, and I still believe that that’s very much the case. And beyond that, I can’t comment further.”
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