Sprint in 'Valley of Darkness' Looks for More Time, Not Airwaves

  • Carrier sits on abundant spectrum it needs to put to use
  • `Sprint is still a show-me story,' Wells Fargo analyst says

First Sprint Corp. practically gave away new iPhones to grab market share. Then, the wireless carrier said it won’t participate in an auction where it could have won new airwaves at a time when mobile networks are clogged with video traffic.

While last week’s decisions smacked of desperation at an unprofitable and cash-trapped company whose credit ratings had just been downgraded, don’t write off Sprint just yet: It sits on an abundant supply of unused airwaves and plans to put them to work to catch up with rivals in service quality.

“Sprint isn’t in a happy place,” said Roger Entner, an analyst with Recon Analytics LLC. “Their network is improving, but they are going to be in the valley of darkness for another year before improvements will be widely recognized by consumers.”

By announcing last Saturday that it opted out of the March 2016 auction, Sprint Chief Executive Officer Marcelo Claure saved the estimated $9 billion it would have had to spend for low-frequency, wall-penetrating airwaves. His hands were tied as Sprint’s cash burn accelerated -- reserves declined by $2 billion last quarter. Now the CEO must demonstrate that Sprint can deliver better network performance with the spectrum it already has.

‘Show-Me Story’

The decision to skip the Federal Communications Commission’s auction is understandable, said Jennifer Fritzsche, an analyst at Wells Fargo & Co. The new airwaves wouldn’t be immediately available and Sprint to work on its network right now, she said.

“Sprint is still a show-me story, especially on the network side,” Fritzsche said.

A year into the job, Claure has managed to lure back subscribers with half-price offers and other discounts, like last Thursday’s lease offers starting at $1 a month for the new Apple Inc. iPhones. He remains sanguine about his ability to turn around the company.

“I see a bright light at the end of the tunnel,” Claure said in an interview Thursday. “This will be one of the greatest turnarounds in history.”

One reason for optimism is the support of Japan’s SoftBank Group Corp., which owns more than 82 percent of Sprint. Claure himself was picked by SoftBank Chairman Masayoshi Son to revitalize Sprint. While SoftBank had spent some time this year exploring a sale of the company, it has since rekindled a commitment to the U.S. carrier.

“There’s no way SoftBank is going to let them go belly up,” said Entner, the analyst.

On Sept. 15, Moody’s Investors Service downgraded the carrier, cutting some of its unsecured ratings to Caa1, a level that means very high credit risk and poor standing. The bonds due February 2025 have tumbled 16 percent since the Moody’s downgrade, while the stock slumped 22 percent.

Moody’s, in its report, highlighted Sprint’s need to balance its airwaves holdings so it can compete effectively with rivals across low-, mid- and high-frequency signals.

Sprint holds more spectrum than any of its competitors, including phone giants AT&T Inc. and Verizon Communications Inc. The bulk of Sprint’s airwaves are high-frequency, which don’t travel well through buildings but are good for expanding network capacity and carrying more traffic. Sprint is adding more antennas to cell sites in cities across the country to beef up its coverage.

Even without the low-frequency airwaves sold in the 2016 auction, Sprint says it has sufficient spectrum to deliver better service.

“Sprint has the spectrum it needs to deploy its network architecture of the future,” Claure said in an e-mailed statement Saturday.

The network of the future will still require Sprint to spend money on upgrades, if not on airwaves.

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