Sprint presents two different stories: carrier suggests financial health during quarterly earnings report, but claims it can’t compete without T-Mobile merger in FCC filing.
It has been no secret among industry observers and Wall Street analysts that Sprint has been unable to correct its flagging performance and the wireless carrier might have a tough time regrouping unless it’s able to jump start revenue and subscriber growth, writes FierceWireless’ Mike Dano. After Sprint’s recent filling with the FCC it’s apparent the carrier is well aware of its situation, too.
“Sprint’s standalone future will not be one that allows it to be an effective competitor to Verizon and AT&T on a nationwide basis,” the company wrote in a filing with the FCC. “And though Sprint’s massive cost reductions have stabilized the company’s finances and yielded positive free cash flow for the first time in many years, the company achieved that result only by shrinking the company and reducing network investment to historically low levels. Put simply, Sprint lacks the scale and resources to expand its network capital spending (as required to avoid falling further behind in network quality and to begin deploying 5G network technologies) and continue its aggressive spending (in the form of promotional pricing and other incentives) on customer acquisition.”
It probably does not come as a surprise that Sprint’s less than glowing outlook is contained within its filing with T-Mobile that urged the FCC to approve the carriers’ proposed merger. Sprint made the case in the FCC filing that it won’t be able to compete going forward unless regulators allow the merger to go through.
T-Mobile made a similar argument in the filing, but it provided a more optimistic outlook on its future.
“T-Mobile, as a standalone company, has had some success but will not be able to continue competing as well without the merger,” the carrier wrote.
Sprint’s outlook was the one that stood out in the filing, however. The company’s assessment of its own future sat under a headline that read, “Sprint Faces Serious Challenges for the Future.”
Some of Sprint’s Challenges include: it is losing customers, “despite Sprint’s aggressive attempts to add subscribers and thereby gain scale”; the carrier’s LTE network is smaller than its rivals’ which forces it to engage in expensive roaming agreements; and within its network footprint, the combination of Sprint’s limited 2.5 GHz spectrum and an inadequate density of small cell sites equipped with 2.5 GHz radios, results in significant coverage gaps in the 2.5 GHz layer.
Sprint also faces challenges deploying 5G. The carrier will only be able to deploy the network on its 2.5 GHz spectrum and only in dense, urban areas as it does not have enough low-band spectrum for 5G and because it’ll be too expensive to deploy 5G on its spectrum across the U.S. Plus, Sprint will have to deploy significant Multiple Input Multiple Output (MIMO) technology in heavily congested areas, which means its 5G network “will not be contagious.”
Of course there’s also the issue of Sprint’s finances. The carrier wrote about the matter, “Sprint’s service revenue and ARPU have been declining for at least five years, with total service revenue falling around 25 percent from 2013 to 2018, and postpaid ARPU falling approximately 30 percent. Sprint also has a current net debt of approximately $32 billion and is the most highly leveraged company in the S&P 500.”
Sprint’s gloomy outlook in its recent FCC filing differs significantly from what the carrier said during its recent quarterly earnings reports. At that time, Sprint CEO Marcelo Claure stated, “In the fourth year of our turnaround, Sprint delivered the best financial results in company history as a result of growing our customer base and continuously improving our cost structure, while significantly improving our LTE network and initiating deployment for the first truly mobile 5G network in the U.S.”
Claure made those comments in May at the company’s first quarter results release and after it announced it planned to merge with T-Mobile.
Despite those statements, Sprint’s FCC filing is a closer match to the outlook MoffettNathanson analysts shared in May than what Claure said at the time.
“Absent a merger with T-Mobile, Sprint still doesn’t look sustainable,” the MoffettNathanson analysts wrote following the release of Sprint’s first quarter results.