Sprint Corp.’s third quarter earnings report showed the company’s effort to produce rapid growth and cut costs, while awaiting approval of its proposed $26.5 billion merger with T-Mobile US Inc.
On Thursday January 31th, the Overland Park-based wireless carrier reported its second consecutive quarter of year-over-year growth in wireless service revenue and its sixth consecutive quarter of postpaid net additions. The company also reported its 12th consecutive quarter of operating income.
Sprint reported 309,000 postpaid net additions in the quarter that ended Dec. 31, an improvement of 53,000 compared to the previous year, as the carrier focused on growing revenue per customer with wearables and other services.
“Sprint’s strategy of balancing growth and profitability while we work toward regulatory approval of our T-Mobile merger is reflected in our fiscal third-quarter results,” Sprint CEO Michel Combes said in a press release. “We delivered solid financials, increased network investments as we prepare for our mobile 5G launch, and continued the digital transformation of the company.”
For the full fiscal year, the company expects to cut costs by more than $1 billion for the fifth consecutive year, with net reductions of less than $500 million after reinvestments. Sprint more than doubled its quarterly network investments, or cash capital expenditures excluding leased devices, to $1.4 billion, and increased by approximately $150 million compared to the previous quarter as the company moved toward launching its 5G service. The company reports it now has 2.5 GHz spectrum deployed on approximately 75 percent of its macro sites, and has 27,000 small cells deployed — both key factors in deploying 5G service.
Sprint reported a net loss of $141 million in the quarter compared to a net income of $7.2 billion in the year-ago period.
Highlights of Sprint’s Earnings Call:
Sprint CEO Michel Combes:
Atlanta is one of our Massive MIMO markets preparing for 5G launch in the coming months. That means fans in town for the Superbowl will see exceptional network performance in the highest traffic locations, whether they are inside or outside the stadium, to a nearby museum or hotel, or traveling around the city to one of the many special events planned this weekend.
We’re also preparing to launch our mobile 5G network in the first half of 2019. Our Massive MIMO radio are software upgradable to 5G NR as you know, allowing us to fully utilize our spectrum for both LTE and 5G simultaneously while we enhance capacity even further with 5G and begin to support new 5G use cases.
We celebrated an important milestone earlier this month on our path towards launching mobile 5G service in the first half of this year, when we completed the world’s first over-the-air 5G data transition using 2.5 and Massive MIMO on Sprint’s live commercial network.
We’ve also announced three 5G devices including smartphones from both LG and Samsung as well as a feature-rich mobile hotspot from HTC. The other carriers are not standing still, but our significant work investments, spectrum resources and cutting-edge technologies will help us continue to improve our network and we expect to deliver robust 5G experience in major metro areas.
Nevertheless, we’re hopeful to complete our merger with T-Mobile which is the only path to deliverings of breadth and depth of spectrum which will allow us to provide a truly consistent national-wide 5G experience to Americans.
As a stand-alone company, we love to scale to keep pace with the bigger carriers, AT&T and Verizon, in sustained capital investments and without additional low-band spectrum we will face challenges to provide customers with coverage comparable to that of the big two carriers.
Sprint CTO John Saw:
We expect to be substantially done with adding 2.5 GHz to where we needed it in another quarter, towards spring this year. And like we have said, we have made significant progress. A year ago, we were only at 50% of our sites having 2.5 GHz.
Small cells, again, a lot of momentum recently, 27,000 small cells. A year ago, we only had 3,000. So the permits are starting to come in. Some of our infrastructure that we are leveraging, especially with the cable companies, is making it easier for us to deploy small cells faster.
LTE Advanced has rolled out in more than 270 cities, and this is why we’re starting to make an impression even in the big markets where our customer experience speeds have improved significantly because of LTE Advanced.
We expect the LTE Advanced upgrades to complete around spring this year as well. Small cells will continue to be a focus for us because we need to continue to densify our networks even with 5G. A network is never done, Brett, so we are also rapidly transitioning to focusing on 5G as well. As you know, a lot of our radios that we’re deploying today with Massive MIMO allows us to simultaneously support LTE and 5G, and that is going to be the main focus for the rest of this year for 5G.
Closing remarks by Michel Combes:
We are aggressively executing our Next-Gen Network deployment to deliver a network build for unlimited with building the foundation for our mobile 5G network that will launch commercially in the coming months. We continue to enhance our value proposition and continue to transform our cost structure and customer experience with digital, artificial intelligence, advanced analytics and automation.
Sprint today confirmed plans for an innovative, pre-standard 5G smartphone expected to launch in summer 2019 from Samsung. The company says that Sprint customers will be among the first in the world to experience the incredible speed, reliability and mobility of 5G on this feature-rich handset. Note that AT&T and Verizon have also announced smartphone from Samsung for the 2nd half of 2019.
“We are proud that our longstanding relationship with Samsung has delivered some of the most innovative mobile technologies to our customers over the years – and this tradition continues with 5G,” said Dr. John Saw, Sprint chief technology officer. “Samsung is one of our key 5G network infrastructure Massive MIMO providers, so we are delighted that they will also deliver one of our first 5G smartphones, putting blazing fast connectivity right into our customers’ hands.”
This Samsung device will offer dual-mode connectivity to Sprint’s LTE and 5G network. For 5G and LTE, it will support Sprint’s 2.5 GHz spectrum. In addition, it will support Sprint’s 1.9 GHz spectrum (band 25), 800 MHz spectrum (band 26) and other LTE spectrum bands for roaming. Additional device specifications and exact timing will be announced later.
That’s in contrast to the mmWave frequency technology that’s favored by AT&T and Verizon (defined as being between 30GHz and 300GHz). In December, both AT&T and Verizon announced that they would be carrying upcoming 5G smartphones. Verizon was first, and it announced that it would be selling one of the phones in the first half of 2019. AT&T responded by saying that not only would it have that same phone early in the year, but it would also offer a second 5G phone from Samsung in the second half of the year.
5G promises new levels of innovation and progress to connect people, places and the billions of things Sprint customers do with super-fast speed and ultra-reliable wireless connectivity. Customers should experience a shift from 4G to 5G with full-length HD movie downloads in seconds instead of minutes. Graphic-heavy videos and high speed games should play without delays, hiccups or lag-time.
Sprint is building its 5G product ecosystem to give customers choice in how they connect to Sprint’s 5G network. This is the third device announced for Sprint’s 5G network to date. In August, Sprint was the first U.S. carrier to announce timing for a network-integrated 5G smartphone, and it followed in November with news of a 5G mobile smart hub.
In the first half of 2019 Sprint plans to launch its mobile 5G network in nine of some of the largest cities in the U.S.–Atlanta, Chicago, Dallas, Houston, Kansas City, Los Angeles, New York City, Phoenix and Washington, D.C., with additional markets to be announced. Massive MIMO technology is a key part of Sprint’s 5G strategy and network build. This breakthrough technology dramatically increases the capacity of Sprint’s LTE Advanced network today and is software upgradable to 5G. With Massive MIMO at the foundation of its mobile 5G service, Sprint can meet its customers’ demand for unlimited data and high-bandwidth applications, such as television in high definition and virtual reality.
To follow Sprint’s Next-Gen Network build out and its road to 5G, visit http://newsroom.sprint.com/network/.
Samsung is reportedly working on at least two variants of its upcoming Galaxy S10 smartphone: one with a Qualcomm modem and the other with a Samsung-made equivalent. One of these is also rumored to be a “Beyond X” version of the phone with a 6.7-inch screen. None of the three carriers have confirmed exactly which model of Samsung phone they’ll be carrying. Sprint stopped short of confirming that Samsung’s device would be the first 5G phone on its network, saying only that it would be “one of” the first after. The US carrier previously announced that it would carry a 5G phone from LG earlier in the year, and it also said it was working with HTC to develop a 5G “smart hub.”
Sprint said today in a press release that it’s Next-Gen Network build is well underway as we invest billions to give Sprint customers an even stronger 4G – LTE Advanced network (true 4G) and launch mobile 5G (fake-non standard) in the first half of next year. CTO John Saw wrote:
The Sprint Next-Gen Network build stems from our largest investment in years, and we’re unleashing our spectrum assets to improve coverage, reliability and speed nationwide as we work to launch mobile 5G in the first half of 2019.
Massive MIMO is our award-winning strategy for 5G. This game-changing technology is capable of delivering up to 10 times the capacity of current LTE systems, significantly increasing data speeds for more customers in high-traffic locations. And because Sprint has so much 2.5 GHz spectrum, we can use Massive MIMO to deliver 4G LTE and 5G on the same radio simultaneously.
In our first quarter of FY18 we continued field testing and optimizing Massive MIMO radios in locations such as Dallas, Los Angeles and New York City. Some sites are now running commercial traffic and the initial performance results are very promising. Today we’re seeing a more than 4X increase in speed on these sites, as well as increased coverage and cell edge performance.
When it comes to 5G, the network is only part of the equation. This is why we’re excited to keep making progress on our first 5G smartphone and Always Connected PC. In the first half of 2019 we plan to launch mobile 5G in nine markets initially – Atlanta, Chicago, Dallas, Houston, Kansas City, Los Angeles, New York City, Phoenix and Washington, D.C. And we expect Sprint customers will be among the first in the world to have access to a beautifully designed 5G phone.
It’s an exciting time to be in wireless with LTE networks rapidly advancing and 5G on the near horizon. You’ll see us accelerate our build activity in the months ahead. More triband upgrades, more innovative small cells, and more game-changing Massive MIMO powering a Network Built for Unlimited.
These technologies and more all play a pivotal role in improving the network experience for our customers under any scenario. If Sprint proceeds as a standalone company, our investment helps us continue improving our 4G LTE Advanced network, and launch mobile 5G in the first half of next year. If the merger with T-Mobile is approved, our investment helps the combined company rapidly create the best nationwide mobile 5G network, fueling a wave of innovation and disruption throughout the marketplace.
In March 2018, Saw told RCR Wireless: “Massive MIMO is our secret weapon to getting 5G built simultaneously with 4G. You need two enabling things. One is massive MIMO. I was just in a meeting with [Ericsson] to see if they can do more faster. The second thing is spectrum.” Sprint is tapping its 2.5 GHz spectrum to support the massive MIMO build. That theme was echoed last week during Sprint’s fiscal first quarter 2018 earnings call.
“We now have a few massive MIMO sites on air,” Sprint’s new CEO, Michel Combes, said Wednesday, adding that the 2.4GHz massive input, massive output (massive MIMO) arrays are “5G-ready” with a software upgrade for the mobile 3rd Generation Partnership Project (3GPP) New Radio specification. “We expect to provide mobile services and devices in the first half of 2019,” Combes said. (See Sprint Reveals 3 More 5G Cities, Promises ‘Cool’ 5G Phone & Small Cell and Intel Promises 5G Laptops With Sprint in 2019). Specifically, Combes said on the earnings call:
We are deploying innovative 5G technologies such as Massive MIMO as we prepare to launch the first 5G mobile network in the first half of 2019. Massive MIMO radios are software upgradable to 5G NR allowing us to fully utilize our spectrum for both LTE and 5G simultaneously while we enhance capacity even further with 5G and begin to support new 5G use cases. We now have a few Massive MIMO sites commercially on air in a few markets and are seeing very promising results, including speed improvements of over 300% while also increasing coverage and cell edge performance.
Sprint’s priority is mobile 5G and we expect to provide commercial services and devices by the first half 2019. Most importantly, as we look ahead, it’s clear that our proposed merger with T-Mobile will deliver an acceleration of an even greater 5G network with the breadth and depth that we could not do on our own.
Sprint has previously said that massive MIMO will be deployed in its initial 5G cities first. Sprint has so far named Atlanta; Chicago; Dallas; Houston; Kansas City; Los Angeles; New York City; Phoenix; and Washington, D.C., as its first 5G markets.
Massive MIMO will enable Sprint to run both LTE and 5G on its 2.5GHz band, CTO John Saw noted on the call. It is taking advantage of its higher-band spectrum to deploy 64 transmitters and 64 receivers (64T64R) in an array. It has already shown over 600-Mbit/s downloads on LTE over MIMO in New Orleans. (See Gigabit LTE: Sprint’s MIMO Gras in New Orleans).
Separately, Sprint now seems more open to using millimeter wave if it can buy licenses at auction in November. “It’s an excellent opportunity to supplement our 2.5GHz portfolio for our 5G deployment,” Combes said.
CTO Saw has said that LTE speeds in its initial 5G markets are seeing a four-times increase in download speeds, although CEO Combes noted on the earnings call that Sprint can build a better 5G network if its merger with T-Mobile is approved. (See Getting Real About Mobile 5G Speeds). New Sprint CFO Andrew Davies noted that capital expenditure for the quarter was “relatively flat” year-on-year, at $1.1 billion. Network spending will ramp up with the 5G build this year, to $5 billion or $6 billion.
The announced merger of T-Mobile and Sprint, the third- and fourth-largest wireless carriers in the nation, answers many of the scale questions that have dogged the two companies over the past several years. But in creating a carrier with about 100 million customers and valued at a combined $146 billion, the deal bypasses what many had considered to be T-Mobile’s more perfect match: Dish Network.
With a large swath of wireless spectrum, 11 million satellite TV subscribers and 2.2 million customers for its over-the-top video service Sling TV, Dish was seen by many to be a logical target for T-Mobile. Combining the No. 3 wireless carrier, which has obvious video aspirations through its January purchase of Layer3 TV, with Dish would in many minds have created a strong competitor in the ongoing wireless-OTT-traditional video wars.
Investors apparently believed so too. Shares in Dish fell 3% ($1.19 each) to $33.55 per share on April 30, the first trading day after T-Mobile and Sprint announced their deal. The stock has continued to slip in subsequent trading, closing at $33.09 on May 3.
Video Plans ‘Ratchet Up’
On a conference call to discuss first-quarter results shortly after the Sprint deal was announced, T-Mobile chief financial officer Braxton Carter said the transaction “ratchets up” the wireless provider’s video plans by allowing the combined company to provide customers with an IPTV service via wireline and wireless broadband.
The combined company will be controlled by T-Mobile management: CEO John Legere will continue that role in the new entity, as will T-Mobile chief operating officer Mike Sievert. T-Mobile parent Deutsche Telekom will own 42% of the combined company, with Sprint parent Softbank owning 27% and the remaining 31% held by the public. The deal is expected to close in the first half of next year.
This is the two companies’ third time on the merger dance floor together. They scrapped talks in 2014 over regulatory concerns and in 2017 over control issues. While the two have managed to work out their control issues, some analysts are skeptical that the current deal will sail easily through the regulatory process.
BTIG telecom analyst Walt Piecyk gave the merger a less than 40% chance of passing regulatory muster, primarily because he didn’t believe the deal, which will reduce the number of wireless competitors to three from four, will pass the antitrust smell test.
“It doesn’t look like a competitive market right now, and that’s what the regulator may focus on,” Piecyk told CNBC.
Columbia Law professor Tim Wu wrote an op-ed piece for The New York Times urging regulators to block the deal, adding that having four separate competitors has been most beneficial to wireless customers, leading to free unlimited data plans and lower prices. Transforming the wireless business into a “triopoly” like the airline business will only serve to raise prices and lower service.
“Competition has actually worked the way economists say it is supposed to, forcing firms to improve quality or face elimination,” Wu wrote in the Times. “But it takes competitors to compete, which is where blocking mergers comes in.”
Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak has said in research notes over the past year that pairing Dish and T-Mobile would “immediately vault the most disruptive U.S. wireless player into the leading U.S. spectrum position,” and at worst would force rival wireless company Verizon Communications to pay more for the satellite asset. For now, though, it looks like Dish will remain on its own. Other scenarios see the satellite company being acquired either by another wireless service provider, like Verizon, or even by the new T-Mobile. The latter scenario wouldn’t take place for at least another year. Dish has struggled over the past several quarters as the satellite business has dwindled. In the fourth quarter the company lost more than 100,000 satellite-TV subscribers and added 160,000 Sling TV customers.
Dish Misses Out on Buildout Relief
For Dish, a purchase by a wireless carrier would mean relief from its obligation to build its own wireless network. As a result of its success in bidding on spectrum in several of the government’s wireless auctions, Dish faces a March 2020 deadline to build out wireless service in 70% of the market territories it won.
Dish chair Charlie Ergen has said the company will spend about $1 billion on that initial phase, which will be more geared toward IoT services.
For T-Mobile, a Dish purchase would give it an instant video base through the satellite-TV offering, programming contracts with cable networks and the largest OTT service in the country, Sling TV.
But not all analysts believe that a T-Mobile-Dish deal is more palpable. In a research note in November, after T-Mobile and Sprint ended merger talks, MoffettNathanson principal and senior analyst Craig Moffett wrote that he never saw any synergies in combining those companies, other than as a source of additional spectrum.
The argument that the dissolution of the merger was bad news for Dish is equally compelling in that, if Dish does build its wireless network, it would become the fifth player in an already-crowded market, he added.
“However bad one might have imagined the ROI (Return on Investment) for network building, it has to be worse if the industry is more fragmented than expected,” Moffett wrote in November.
Dish’s Spectrum Yet to be Deployed:
Dish has quietly worked to cobble together a significant amount of spectrum via spectrum auctions and secondary-market transactions. The company’s first spectrum purchase was made through EchoStar’s relatively minor purchase of E Block licenses for $700 million in the FCC’s 700 MHz spectrum auction in 2008. But Dish in 2011 spent $2.77 billion to acquire 40 MHz of S-band satellite spectrum from bankrupt TerreStar and DBSD North America. Then, in 2014, Dish was the only bidder in the FCC’s H Block spectrum auction, essentially walking away uncontested with 10 MHz for around $1.6 billion. In 2015, Dish spent roughly $8 billion on AWS-3 spectrum licenses, and then just two years later it committed a whopping $6.2 billion to buy 486 licenses in the FCC’s 600 MHz incentive auction.
Dish recently outlined plans to build a NB-IoT network using its spectrum to provide connectivity to a wide range of devices other than traditional tablets and smartphones. Some analysts remain skeptical, though, believing that Dish plans to either sell or lease its spectrum, or partner with an existing service provider to join the wireless market.
Dish has to comply with Federal Communications Commission requirements that a network using the spectrum it owns be deployed by 2020, Josh Yatskowitz, an analyst at Bloomberg Intelligence, said last November.
Sprint will increase its network capital expenditure by at least $1 billion for the coming year as promised on Friday morning’s earnings call. The #4 U.S. wireless carrier plans to deliver mobile 5G in the first half of 2019.
–>That’s 1 year before the IMT 2020 standards will be completed!
Sprint Corp talked about its mobile 5G plans: “We’re working with Qualcomm [and others] in order to deliver the first truly mobile 5G network in the US in the first half of 2019,” CEO Marcello Claure said on the call.
Mr Claure said that Sprint will be able to deploy mobile 5G nationwide on 2.5GHz band in 100MHz channels. “We have the spectrum to lead on 5G, and basically lead in a different way,” he noted. Claure said later in the question and answer session that Sprint had a commitment from a “leading Korean” device vendor that it will have a 5G device ready within its 2019 timeframe.
This implies an increase in capital expenditure spending for Sprint’s network for fiscal 2018, new CFO Michel Combes said. Sprint’s total capex spending for fiscal 2017 will be in the $3.5-$4 range. Capex will hit $5-$6 billion in fiscal 2018, which starts in April 2018.
Sprint will spend to increase the number macro cell sites by 20%, and support its 2.5GHz, 1900MHz, and 850MHz bands on nearly all of its existing macro sites. Currently, around half of its macro sites have tri-band support.
The CEO added that Sprint plans to deploy more than 40,000 outdoor small cells, and “more than 1 million Magic Boxes,” the wireless small cells that it uses to improve in-home coverage.
In the field, Sprint expects to update sites with multiple-antenna array hardware, or “Massive MIMO” in 2018. “Massive MIMO will serve as Sprint’s bridge to 5G,” Claure said. (See Sprint Says No to mmWave, Yes to Mobile 5G.)
This is because the MIMO hardware can be updated to 5G NR standard over-the-air, the CEO said.
Our strategy is predicated on creating on amazing customer-experience, offering customers the best products and services, while delivering superior financial results. First, we recognize that to be a truly great company we have to have a great product, which for us is our network. While our network is much improved, we believe our next-gen network will truly differentiate Sprint over the next couple of years, due to our strong spectrum assets that enables Sprint to be the leader in the true mobile 5G.
This is the biggest network capital program in many years. And I will share more details of our network strategy in a few moments. I cannot wait to, once and for all, be able to sell the product that is best in the industry with competitive coverage, the fastest speed and the highest capacity.
Second, we will continue to deliver the most compelling value proposition to our customers across all of our segments. We will continue to play from a position of strength by leveraging our spectrum holdings and continue to lead with the best-only net offering in the market. Data usage strength are projected to grow exponentially, especially with 5G.
By having the most spectrum, combined with new technology that massively increases our capacity, we’re certain that we’ll be best position for to support unlimited data in the future.
Third, we will continue to drive a smart distribution strategy, with over 1,000 new stores open year-to-date across our Sprint and Boost brand, and several hundred several hundred throughout next year. We have designed a dynamic distribution model that allows to continuously optimize the right balance of physical and distribution – and digital distribution.
Sprint will also leverage its partnerships with Altice and Cox Communications Inc. to expand its backhaul capabilities for LTE-Advanced and 5G. Sprint CTO John Saw chimed in briefly on the call to say that some of the capex spend could be on “dark fiber” for backhaul needs.
Against this backdrop, Claure said there would be continuing job cuts at Sprint, including at the executive level, aiming for “a leaner and more agile company across our non-customer-facing workforce.” Sprint has cut thousands of jobs during the past couple of years.
True to his reputation as a “turnaround specialist,” new CFO Michel Combes said he is looking at more ways to “decrease cost structures” at Sprint. He promised to reveal more details in the March quarter. (See Sprint Appoints Ex-AlcaLu Boss Combes as CFO.)
For the quarter, Sprint reported revenue of $8.24 billion, down from $8.55 billion a year ago. Net income for the quarter was $7.16 billion (or $1.76 per share) thanks almost entirely to tax reform gains of about $7.1 billion, compared with a net loss of $479 million a year ago.