Vendor financing deals total $1.8B, include Nokia Networks, Samsung and Alcatel-Lucent
More than a year after announcing its 2.5 GHz-powered Spark initiative, Sprint today announced it had signed $1.8 billion in vendor financing agreements with three equipment vendors and added $300 million in credit with a Canadian financier.
The vendor agreements include $800 million from Nokia Networks that is set to mature in 2021; a $750 million agreement with Samsung that is set to mature in 2022; and a $250 million agreement with Alcatel-Lucent set to mature in 2021. All three agreements are backed by banks based in the equipment vendor’s home country and guaranteed by Sprint. All three vendors were part of Sprint’s initial Spark announcement in October 2013.
The agreements call for Sprint to purchase equipment to bolster its 2.5 GHz-based network plans, which at the end of last year covered approximately 100 million potential customers. Sprint said it plans to continue expanding 2.5 GHz coverage in 2015, with a focus on markets with exceedingly high “usage and capacity demands.” This would be part of the carrier’s previous plans to provide a “Tokyo-like” mobile broadband experience in densely populated markets by tapping into the experience of parent company Softbank.
Sprint’s Spark offering is said to provide network speeds in excess of 50 megabits per second thanks to the carrier’s extensive 2.5 GHz spectrum holdings. Sprint initially talked about deploying the 2.5 GHz band across all of its planned LTE sites, even in rural areas where the propagation characteristics of that spectrum would not allow for broad coverage. However, recently installed CEO Marcelo Claure noted that the carrier will likely not follow such a rollout strategy, and instead would focus its 2.5 GHz efforts in denser, urban areas where the carrier is likely to see capacity constraints.
Softbank recently sent over reinforcements in the form of executives to help Sprint with its 2.5 GHz plans. Late last year, Nikesh Arora was appointed to Sprint’s board, having previously served as vice chairman at Softbank and CEO of Softbank Internet and Media. Prior to that, Softbank named current EVP and CTO Junichi Miyakawa to the newly created role of technical COO at Sprint. In the new position, Miyakawa will oversee the company’s network and technology organization, including related strategy, network operations and performance, and will lead Sprint’s relationships with “key network equipment vendors.”
Canadian, Swedish, Japanese coins
In addition to the vendor agreements, Sprint said that with the help of Alcatel-Lucent it also arranged a $300 million incremental facility with Export Development Canada that is set to mature in 2019. That agreement was an extension of an existing credit facility with EDC, with the terms amended to align financial covenants with Sprint’s existing revolving credit facility, with Sprint now on the hook for $800 million in total to EDC.
Outside of the new vendor financing, Sprint amended terms of a $1 billion credit facility with Ericsson that aligns its financial covenants with Sprint’s revolving credit facility. That agreement had an outstanding principal balance of $635 million at the end of September.
Ericsson has been managing Sprint’s network operations since 2009, working through a seven-year, $5 billion agreement. Ericsson was not part of Sprint’s Spark program, which analysts noted was likely a result of Sprint attempting to keep Ericsson as a neutral third party in dealing with the other vendors.
“These deals provide Sprint with greater flexibility and liquidity options as we focus on growing the business and investing in our network,” explained Sprint CFO Joe Euteneuer in a statement.
Analysts were becoming worried about Sprint’s ability to finance its network plans despite claims from Softbank that the money would be available if needed. Sprint explained that at the end of last September, it had $5.3 billion in total cash, cash equivalents and short-term investments, and $8.8 billion in total liquidity.
Sprint had stated that it expected full-year 2014 capital expenditures to come in under $6 billion, which was below initial estimates of around $7 billion. In an investor call, Sprint’s management explained that most of its capital expenditure focus was now geared toward its 800 MHz and 2.5 GHz LTE overlay plans, with the increased traffic handled by its LTE network allowing the operator to trim spending on its legacy 3G network. Sprint’s CDMA-based 3G network was a core piece of the $5 billion Network Vision program that saw the carrier basically replace all of its legacy equipment.
Sprint has also announced plans to cut jobs in an attempt to better align its current workforce with operational performance. Those moves are expected to boost the bottom line, but risk damaging employee morale at a time when the carrier is looking to provide a new face to consumers.
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