When Sprint Nextel Corp. unveiled its choice of next-generation network technology last week, there appeared to be two types of reactions: “Finally!” and “Quit trying to distract us.”
After months of hints and trials, the carrier laid out its technology decision, a timeframe and some approximate costs-but a number of analysts found the timing of the announcement as interesting as the announcement itself, coming the week after the carrier posted disappointing second quarter results, and the day before the advanced wireless services spectrum auction began. Sprint Nextel is participating in the AWS auction as part of joint venture with cable television providers.
“It helped Sprint to give people something new to talk about, rather than their rather dismal second quarter, and it probably gave the cable guys some reassurance that they’re working with somebody that is building a new network for them,” said Ovum analyst Roger Entner.
Current Analysis analyst Kitty Weldon pointed out that due to Federal Communications Commission requirements for using the 2.5 GHz spectrum as part of Sprint Corp.’s acquisition of Nextel Communications Inc. last year, Sprint Nextel “can’t stall all that long.” Sprint Nextel needs to offer service using its 2.5 GHz spectrum to at least 15 million potential customers by 2009.
And Sprint Nextel is piling ambitious plans for a brand new network on top of a sizable pile of other to-dos, including bringing in and integrating its affiliates, continuing to build out CDMA2000 1x EV-DO, rolling out EV-DO Rev. A later this year, continuing to run both its CDMA and iDEN networks, and improving its financial and customer metrics. “If anyone has a lot to deal with at the moment, Sprint Nextel does,” Weldon said.
But there are potential opportunities ahead for Sprint Nextel with WiMAX, and company executives spoke eagerly of the possibility of consumer electronics devices such as video cameras, MP3 players and portable video game devices with WiMAX capabilities.
There are also possible partners. ABI Research senior analyst Philip Solis noted that fixed-wireless broadband provider Clearwire Corp. also has relationships with Sprint Nextel vendors Intel Corp. and Motorola Inc. Sprint Nextel and Clearwire, Solis said, could arrange a roaming pact to fill in the holes in their respective coverage areas and leverage each others’ 2.5 GHz holdings. It’s also possible, Solis said, that Sprint Nextel’s choice of WiMAX will benefit satellite providers that are participating in the AWS auction due to having more options and lower-cost equipment.
Sprint Nextel executives mentioned time to market as one deciding factor in their technology choice, and analysts noted that they also would not be locked into one vendor.
“[WiMAX] has a huge ecosystem of vendors supporting it, which was one of the most important things to Sprint,” Solis added.
Sprint Nextel’s move could push other U.S. carriers to speed up their own network upgrades, Solis said, for fear that if Sprint Nextel gets its WiMAX network up in the 2007-2008 timeframe, it will be able to offer services that customers will flock to.
Weldon predicted Verizon will have to respond to the Sprint Nextel announcement, because by choosing WiMAX the nation’s second-largest CDMA carrier is effectively saying that CDMA technology will run out of gas. “They’re clearly saying that, yes, `We’re planning for the future and we didn’t see that (Revision) A, B or C was really going to be enough to get us … where we need to be in the long term,” Weldon said.
However, UBS Equity Research analyst Maynard Um noted in a research report that Sprint Nextel’s large 2.5 GHz assets make the carrier unique, and that its WiMAX choice is “not necessarily an indicator of a broader industry trend by wireless operators to move to WiMAX.”
But with Sprint Nextel still smarting from its second-quarter performance, Wall Street is likely to be looking at its short-term results rather than the company’s long-term network plans. The carrier’s stock dropped about 7 percent in trading after the WiMAX announcement.
“This is a nice announcement, but frankly, so what?” said analyst Iain Gillott of IGR. “This does not address any of Sprint’s operational problems. This is the classic ploy of Sprint: `Oh my gosh, things are going bad-build a new network, quick! Throw some more technology at it, quick!”
Gillott estimated that it takes four to five quarters before the impacts of a new network begin to have a positive effect on a company’s bottom line, and so it would be mid-2010 before Sprint Nextel starts to see significant benefits from WiMAX-if the company can stick to its schedule.
“My question here is, will Sprint be around in 2008 in its current form to actually deploy this network?” Gillott added. “I can’t tell you today that the company will exist in 2008 … if they keep churning out numbers like they’re doing.”
Sprint Nextel’s customer additions last quarter were heavily skewed toward prepaid, and the carrier added just 210,000 direct postpaid customers. In its wholesale/MVNO business, the carrier went from gaining 228,000 customers in the first quarter to posting a loss of 31,000 customers in the second quarter. Sprint Nextel’s gross postpaid customer additions were down 8 percent year-over-year.
Entner pointed out that Sprint tightened its credit requirements, and its shabby customer adds reflected a purge of low-value customers.
