Sprint Turns to Clearwire to Firm Up LTE Plans
After laying out an aggressive LTE 4G deployment plan earlier this month that didn’t include existing partner Clearwire, Sprint is now saying it’s working with the 4G wholesaler toward a commercial agreement that will allow the third-place carrier to offload some of its LTE needs onto Clearwire’s future LTE network.
Sprint Chief Executive Dan Hesse, speaking on the company’s earnings call Wednesday, said the two have signed a nonbinding memorandum of understanding to work together on ensuring that the two companies’ LTE networks will be able to work together. He said it was a precursor to a binding commercial agreement that would allow Sprint to utilize Clearwire’s LTE network.
Despite the appearance of a reversal, Hesse said it appeared so only because the two were not prepared to talk about cooperation at Sprint’s Oct. 7 strategy update meeting, where Sprint outlined its 4G LTE plans.
“This was the technical teams of Clearwire and Sprint working through all the technical details to make sure we had a technical plan. That’s the foundation on which we can discuss a commercial agreement going forward,” Hesse said.
BIG CLEARWIRE FINANCING
Hesse said with Clearwire in the mix, Sprint has more flexibility in how it proceeds with its LTE plans and could add “additional years” to its LTE capacity. Sprint laid out a plan earlier this month that involved using its own 1900 MHz spectrum to launch LTE next year, with additional 800 MHz spectrum added, which will take Sprint into 2014. By then, Sprint plans to turn to wholesaler LightSquared to get through 2015. But Hesse said if LightSquared doesn’t get FCC approval or financing, a Clearwire agreement will help augment Sprint’s LTE needs.
It doesn’t sound like Sprint is committing any money to Clearwire’s LTE build-out, which Clearwire has said will cost $600 million. So Clearwire will still need to come up with the financing to follow up on its plans to build an LTE-Advanced network. Its stock is getting a boost, however, with the news that Clearwire will likely be able to extend its relationship with Sprint as an LTE customer. Sprint had said that by the end of 2012 it will stop selling WiMAX devices that run on Clearwire’s network but will continue to service its WiMAX customers beyond that. Sprint said Tuesday it would also upgrade to an LTE-Advanced network by 2013, which now makes sense if the two companies are to work together.
It was unlikely that Sprint would sidestep Clearwire altogether in its LTE plans. It owns the majority stake in Clearwire and will likely need its spectrum resources to lay out an LTE network. What’s interesting is that while Sprint talked up its LightSquared deal at its strategy update meeting, it said little about the company on its earnings call. How it juggles these two partners and creates one LTE network will be a challenge for Sprint, especially if either LightSquared or Clearwire struggles to finance their build-outs.
The Clearwire news came as part of a solid quarter for Sprint, which added 1.3 million customers and narrowed its net loss in the quarter leading up to its big iPhone launch. The third-place carrier posted revenue of $8.3 billion, up from $8.15 billion a year ago, and posted a net loss of $310 million, or 10¢ a share, beating analyst estimates and reducing its $911 million loss from the same period a year ago.
Sprint added 441,000 retail subscribers and recorded net additions of 835,000 wholesale and affiliate subscribers, but it lost about 44,000 net post-paid subscribers. The company hopes to add many more users with the iPhone, which helped Sprint have its best sales day ever.
Sprint lowered its postpaid churn slightly, to 1.91 percent, compared with 1.93 percent for the year-ago quarter, although it’s up from 1.75 percent for the second quarter of 2011. Wireless postpaid ARPU reached $58, up $3 from the year earlier and up $1 sequentially. The yearly improvement is the largest year-over-year ARPU growth in almost 12 years.
IPHONE: PUTTING FANS IN THE SEATS
Sprint is facing a financing crunch as it works through its Network Vision upgrade and takes on the costs of the iPhone. That will force it to seek financing of $5 billion to $7 billion in the coming years. While the cost of offering the iPhone will be heavy at first, Hesse said it will be a big win for Sprint, representing a potential 50 percent increase in lifetime value compared with other smartphone subscribers, thanks to lower churn and more efficient use of the network. And the iPhone is projected to add more subscribers to Sprint’s network. Overall, the iPhone is expected to provide $6 billion to $7 billion in net present value to Sprint, though the overall benefits won’t be felt until 2015.
Hesse, recalling the movie Moneyball, likened the iPhone to a star baseball player who makes a team competitive and puts fans in the seats. “The iPhone has an expensive contract, but he’s worth every penny,” Hesse said.
As my colleague Stacey Higginbotham pointed out, Sprint is walking a bit of a tight rope here, but it’s good to see that the company is clearing up some of the uncertainty around its LTE plans and its relationship with Clearwire. Sprint still has a lot of balls in the air to juggle, and a lot has to go right. But with a strong launch of the iPhone, some better ARPU, and good churn, the company is showing it’s competitive. Following up on Hesse’s baseball analogy, though, it’s hard for a small-market team to compete in the long run against the Yankees and Red Sox of the world. You might be able to hang around for a while, but can Sprint compete over the long term? That’s going to be tough however you look at it.
Also from GigaOM:
Sprint’s Tightrope Walk: Finding a Balance for Its Network Modernization Plan (subscription required)