Iain Gillott parses out Sprint network plans in light of recent comments, noting what’s there today will likely be the same in a year
Market research analysts love change and confusion. And so in the mobile world of 2016, Sprint is like a gift straight from heaven. Aside from the ongoing discussion of debt repayments, spending cuts, net subscriber additions, mini-macrocells and 50% discounting, we are also blessed with questionable advertising decisions (think the ghetto T-Mobile US comparison – not good) and the ongoing confusion as to what exactly is the company’s network development strategy.
Trying to get everything into 500 words or so is futile (Trekkies, please note that reference), so we have decided to dedicate three columns solely to Sprint. This discussion will deal with the network development plans, while the next two will discuss spectrum (Sprint executives’ favorite topic) and Sprint’s ability to actually compete in the next year or two. Stay tuned.
So, what is Sprint’s current network plan? From what we can tell, it is best summed up by WYSIWYG, or “what you see is what you get.” Let me explain. Until recently, expectations were that Sprint would be doing a few things to their network in the next year: densifying the network with small cells; deploying the mini-macrocells with Mobilitie; and continuing to upgrade LTE.
But, in last week’s fiscal fourth quarter 2015 earnings release, Sprint made the comment that all of its small cell densification spend would likely be in fiscal year 2017. This means no densification spending for at least the next 12 months (fiscal 2017 starts April 1, 2017). And the company also said they expected another drop in capital expenditures in fiscal year 2016. Given that the network is Sprint’s largest consumer of capital, this can only mean network investment will be cut again.
For any mobile operator, there is a level of investment needed every year to maintain the network performance; things happen that need correcting and this takes capital. For example, new neighborhoods are being built in expanding metro areas resulting in the need for additional coverage and/or capacity. This may mean new sectors on an existing tower or a whole new cell site. Existing antennas may have to be tilted or moved to change the coverage map. All of this activity takes money. Certainly, Sprint can probably get some of this covered under existing vendor agreements (obviously, this depends on the exact terms of the contracts), but some spending is also likely to be needed.
So Sprint cannot stop spending on its network entirely. But it can cut on new network investments, such as upgrading to the next release of LTE or deploying virtualized packet core architectures or moving to centralized radio access networks or implementing video optimization solutions or … or … or … the list goes on.
Now let us look at this from another perspective. From the comments made by Sprint executives (notably CEO Marcelo Claure), the investment in RadioShack stores and the deal with Carphone Warehouse to expand Sprint’s distribution, it is clear Sprint believes it does not have a network problem, but rather a sales and distribution issue. In other words, the attitude appears to be “there is nothing wrong with the product, we just need more people who can sell it.” The ongoing reorganization to split into regions and markets (each responsible for their own sales and sales channels, aping Verizon Wireless’ structure) lends support to this view. The “sales needs fixing, not network” is also beneficial in that sales can be turned around in a matter of a few months, whereas improving networks takes a year or two and costs billions of dollars. Fixing sales can be as simple as hiring the right talent in the right market.
Call us skeptical, but I am not sure Sprint’s problems can be fixed by simply giving people more places to buy services and new sales staff; after all, if the 50% off promo did not lead to millions of new customers, are a few new stores likely to result in a flood of new customers? Hard to see.
As the other mobile operators have demonstrated time and time again, product matters and product means network. “Product” used to mean being able to offer the right smartphone, but today, every operator has the important ones. Consider T-Mobile US: they took the cash payment and spectrum from the AT&T break up and invested in network first, then messaging, marketing and sales second. It worked. Verizon Wireless has always pushed network quality over everything else and continues to invest in network (even selling core assets that were once considered sacred). In this industry, the pattern of the successful is “network first, sales/marketing follows.”
Sprint’s executives seem to believe their network is good enough and that they just need sales folks that can sell the product. This approach may be born out of necessity; the company does not have the financial resources for yet another network improvement overhaul. So Sprint is going the sales route with the hopes it will fix their market performance, quickly. Time will tell if this strategy is successful, but for now realize the network Sprint has today in May 2016, will likely be very similar to the network they have in May 2017. And in this competitive environment, that is not good.
Iain Gillott, founder and president of iGR, is an acknowledged wireless and mobile industry authority and an accomplished presenter. Gillott has been involved in the wireless industry, as both a vendor and analyst, for more than 20 years. The company was founded in 2000 as iGillottResearch in order to provide in-depth market analysis and data focused exclusively on the wireless and mobile industry. Before founding iGR, Gillott was a group VP in IDC’s telecommunications practice, managing IDC’s worldwide research on wireless and mobile communications and Internet access, telecom brands, residential and small business telecommunications and telecom billing services. Prior to joining IDC, Gillott was in various technical roles and a proposal manager at EDS (now Hewlett-Packard), responsible for preparing new business proposals to wireless and mobile operators.
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