With the nation’s three largest wireless operators now having posted first quarter results, No. 3 Sprint Nextel appears to have pulled off a bit of a coup by adding more subscribers to its network than its two larger rivals.
Sprint Nextel said it added 1.08 million customers to its network during the first three months of the year spread across it various operations. By comparison, Verizon Wireless added 734,000 customers while AT&T Mobility scored just 726,000 net customer additions. Some may point out that Sprint Nextel’s results relied heavily on its wholesale and affiliate relationships, and that would be true as 785,000 of those net customer additions were through those indirect channels.
However, AT&T Mobility also relies heavily on non-traditional channels as its “connected devices” and wholesale operations counted more nearly 60% of its net customer additions during the quarter. Verizon Wireless remains a whole different animal as it continues to be a direct channel beast with all of its reported growth coming from either its Verizon Wireless-branded postpaid or prepaid services. It should also be noted that Verizon Wireless did not report customer additions through its wholesale or “other” connections services, which during the fourth quarter posted a loss of 490,000 net “connections.”
iPhone impact
Sprint Nextel acknowledged the impact offering Apple’s iPhone has had on its operations, noting that a majority of its postpaid net additions were customers snatching up that device. The carrier said it activated 1.5 million iPhones on its network during the first quarter and that 44% of those activations were new customers. Sprint Nextel also noted that 40% of those new iPhone customers said they broke an existing contract prior to switching, which the carrier said highlighted its current position as the only nationwide operator offering an unlimited data plan for an iPhone.
How long that advantages remains is still open ended, though the carrier did note that it planned to continue with the offering into the next iPhone launch, which most expect to include LTE capabilities and happen later this year. During a separate conference call hosted by Wells Fargo Securities, Sprint Nextel added that it might look at possible raising its price for unlimited data services as a way to continue funding the network capacity enhancements needed to support the offer. Sprint Nextel currently charges a $10 premium for customers that select a smartphone.
An LTE iPhone could also highlight some shortcomings in Sprint Nextel’s network scope, especially compared with its larger rivals. The carrier said it was on track to provide LTE services to between 100 million and 120 million potential customers by the end of this year. That would have to stack up against more than 260 million pops Verizon Wireless expects to cover with LTE by year-end, while AT&T Mobility said it expects to double current LTE coverage by the end of the year.
Network color
Aside from its strong customer growth, Sprint Nextel’s management continued to color in its network evolution program. Steven Elfman, president of network operations and wholesale at Sprint Nextel, noted that when a Network Vision tower is turned on, in about 80% of those cases the carrier is using between 2.5 and 3 megahertz of 800 MHz spectrum to support its CDMA2000 1x-Advanced voice offering. Sprint Nextel currently has about 14 megahertz of contiguous spectrum in the 800 MHz band resulting from an extensive re-banding effort that is in its final stages. That spectrum is predominately being used to support its iDEN service that is set to be turned off by the end of 2013.
While LTE remains a focus for Sprint Nextel’s mobile broadband future, the carrier is still on the hook for WiMAX services that run across its partner Clearwire’s network and is central to its current “4G” offering. Sprint Nextel has said it will stop rolling out new WiMAX enabled devices as it shifts focus to LTE, but did note that it will begin to offer prepaid customers “4G” services running across the WiMAX network. That could be a sticky customer service proposition for the carrier as Clearwire has said it will not expand current WiMAX coverage beyond its current 129 million potential customers covered, so those prepaid customers looking for ubiquitous “4G” coverage could be in for a shock.
Elfman also tackled some concern regarding the physical layout of its Network Vision plan that calls for the attachment of network infrastructure at the top of the tower site instead of all of it being placed in a cabinet at the base of the tower. Elfman noted that the carrier has had to install “stronger brackets” at some tower sites that were not able to handle the additional load generated by the new equipment.
“We ended up going back to those and putting in some tighter criteria for certification before we would go and do a mount,” Elfman explained. “And so, yes, that caused a brief delay, but nothing that would affect the overall outcome of the project.”
Financially, Sprint Nextel said it expects to announce vendor financing arrangements by mid-year to the tune of between $1 billion and $3 billion. Those funds are expected to be timed with an uptick in network spending as the carrier spent just $710 million during the first quarter of an expected $6 billion in full year capex. Sprint Nextel CFO Joe Euteneuer added that the free cash flow the carrier generated during Q1 will likely turn negative for the remainder of the year due to Network Vision investments and bulked up inventory of LTE devices.
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