What next for Sprint if AT&T- T-Mobile deal doesn’t get done? 4G Strategy will be key!

If the U.S. Justice Department succeeds in blocking the $39 billion merger of AT&T and T-Mobile, Sprint – the nation’s 3rd largest wireless carrier- will be very pleased.  The company would then not face competition from an even larger #1 wireless carrier in its major markets.  But Sprint still faces daunting challenges.  Its market share of subscribers on contracts dropped to 13 percent in 2010, down from 17 percent in 2008, according to Barclays Capital. The company reported a net loss of $847 million in the second quarter of this year.

Christopher King, an analyst with Stifel Nicolaus said that Sprint has already lost to Verizon Wireless and AT&T. Sprint itself has acknowledged the difficulties it faces when competing against companies whose scale will allow them to secure better deals on hardware. The company has also argued that the amount of spectrum that a combined AT&T and T-Mobile would control would be anti-competitive.

But even without the AT&T-T-Mo merger, Sprint is being left in the dust by VZW and AT&T primarilly for picking the WRONG “4G” network (mobile WiMAX rather than LTE). . As LTE has become the defacto “4G” industry standard, there are and will be many more devices for it than for WiMAX.  That gives the customer much more choice.  That is a huge disadvantage for Sprint now that mobile data service is what wireless customers care most about now.  Rolling out LTE over one year after Sprint offered mobile WiMAX (as a Clearwire MVNO), Verizon Wireless has now overtaken Sprint as the nation’s largest “4G” network provider.

Mobile data service is becoming increasingly important to a wireless industry that is experiencing declining revenue from voice traffic. Data charges will account for more than 41 percent of the revenue from contracted wireless subscribers in 2011, according to James Ratcliffe, an analyst at Barclays. That compares with less than 30 percent in 2009.  And all the mobile data subscribers want a lightening fast “4G” service for their smart phones, tablets and notebook/ netbook PCs.

Sprint is planning to disclose its new strategy for its 4G network October 7th at its investor conference in New York.  Everyone expects that strategy to be based on LTE- either on its own, with Clearwire or with LightSquared. 

With respect to the latter option, LightSquared agreed to pay Sprint $9 billion to build a 4G network using its spectrum.
But Sprint hit yet another barrier. Federal regulators are hesitant to allow the companies to use this spectrum because it interferes with GPS frequencies.

Between Clearwire and LightSquared, Sprint should have the spectrum it needs to build its network, analysts say, but it is unclear how it will be able to make the investment to take advantage of this. There is speculation that Sprint will have to buy Clearwire outright, or assemble a consortium of other companies to help it do so. Another option would be a collaboration with cable companies that control spectrum and could be willing to work with Sprint.

The only advantage Sprint seems to have today, is that it offers unlimited data plans, while both VZW and AT&T have instituted “tiered pricing” with data caps.

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Steve Elfman, Sprint’s president and head of network operations recently met with a reporter from the Seattle Times.  Among the looming changes that Elfman sees from his perch are phones with newer multimode radios that do a better job seamlessly shifting across different networks, including 3G and different flavors of 4G.

One of the challenges to getting there is figuring out how to put enough antennas onto a phone to work with all the different bands of spectrum that are available, he said.

Also in the works is new software that does a better job of orchestrating the handoff when you move across networks.

Elfman explained that this software isn’t just embedded in the handset or part of the operating system. It extends from there through the network and into the carrier’s billing systems.

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Note that there’s a lot of speculation that Sprint will announce availablity of Apple’s iPhone 5 on its network, but that would probably be for LTE and not WiMAX.  Deutsche Telekom (but not T-Mobile) has already started to take orders for the iPhone 5.  DT has no plans for WiMAX and supports a GSM based technology called HSPA for 3G, while Sprint supports WiMAX (as a Clearwire MVNO) and CDMA based EVDO as its 3G mobile data network.


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