Sprint Nextel taps Ericsson, Alcatel-Lucent, Samsung for $5B network upgrade: iDEN to be shuttered beginning in 2013

UPDATED: Sprint Nextel Corp.’s (S) plans to overhaul its network operations took shape yesterday as the carrier announced contracts with Ericsson (ERIC), Alcatel-Lucent (ALU) and Samsung Telecommunications America to handle the $5 billion project.
The project, which Sprint Nextel is calling Sprint’s Network Vision, is geared towards consolidating the carrier’s current divergent technology and spectrum assets into a more cohesive operating unit. The plan will include the carrier’s 800 MHz and 1.9 GHz spectrum holdings as well as support the 2.5 GHz spectrum assets it works with through its majority ownership in Clearwire Corp.
Each vendor partner has been assigned a certain geographic segment of Sprint Nextel’s network with Ericsson handling major markets of Atlanta, Miami, Houston, Kansas City, Dallas and surrounding areas; Alcatel-Lucent working in New York City, Philadelphia, Boston, Washington, D.C., Baltimore, Los Angeles and surrounding areas; and Samsung working in Denver, Pittsburgh, San Francisco, Seattle and surrounding areas.
“This announcement is a significant step forward for Sprint for rebuilding and extending its network,” noted Dan Hays, partner at global management consulting firm PRTM. “The focus is a combination of replacing aging equipment and providing flexibility for future plans.”
Savings to be had
The overhaul is scheduled to begin early next year with the network-wide upgrades set to be completed within the next three to five years. Sprint Nextel said the enhancements will provide financial “benefits” of up to $11 billion over a seven year period with an impact on its bottom line expected to begin in 2013. Some of those benefits are expected to come from reduced roaming charges and backhaul savings.
Steve Elfman, president of Sprint Nextel’s network operations and wholesale business, noted that the carrier currently incurs a good deal of roaming expenses from markets where it offers service highlighting its network’s inability to provide sufficient in-building coverage. The newly enhanced network equipment, along with the use of its 800 MHz spectrum holdings are expected to bolster that coverage.
The replacement of aging equipment is expected to provide a financial boost for the carrier as a recent report from Macquarie Equities Research noted that some of Sprint Nextel’s equipment is as much as 15 years old and that recent advancements in network technology have provided for more efficient equipment.
“In addition, Sprint in the last few years has done less than Verizon (for example) to upgrade pieces of the network gradually, so big parts of the network are obsolete,” Macquarie noted in a report. “In some cases our checks indicate that Sprint even has issues with end of life support for some parts from vendors. … Compared to Sprint’s network today, a modern CDMA network has higher reliability, lower operating costs, and should also offer higher signal quality. The potential savings from switch consolidation and reductions in power consumption alone could save $100’s of millions per year in operating costs.”
Technology needs
As for the network plans, Sprint Nextel said the selected vendors will provide new network equipment and software designed to support the diverse spectrum holdings. The carrier did not mention any upgrades beyond its current CDMA deployments, though Elfman said that the new equipment did include LTE capabilities at the radio head that could support LTE services if the carrier chooses to go that way for its CDMA evolution.
“Although Sprint has not explicitly committed to LTE with this announcement, it is clearly a major motivation behind the move to multi-mode base stations,” said Jan Dawson, chief telecoms analyst at Ovum. “LTE is the clear winner in the 4G battle globally, and joining the rest of the world on what will become the dominant technology will allow Sprint to benefit from economies of scale, a broader range of devices and compatibility with roaming partners around the world over the next few years. Controlling its own destiny in 4G will be a major boost for Sprint.”
A Sprint Nextel executive noted at an event earlier this year that the carrier was planning on moving to LTE as well as WiMAX.
The inclusion of 2.5 GHz into the network plans also looks to be an olive branch of sorts by Sprint Nextel to Clearwire Corp., which it holds a majority stake in and is central to Sprint Nextel’s current next-generation network plans. Clearwire’s formation included Sprint Nextel handing over its vast 2.5 GHz spectrum assets that Clearwire has used to build out a WiMAX network covering more than 100 million people.
However, in recent months Clearwire has run into obstacles in its attempts to raise funds to support plans to expand its network coverage beyond the 120 million pop mark it plans to hit by the end of this year. The company recently announced plans for a public offering that could raise more than $1.1 billion, which would put well on the path to reaching the $2 billion or so analyst have said the company would need to fund its build out towards the 200 million pop coverage mark.
Sprint Nextel has said it would be open to helping fund those needs, though Clearwire’s current ownership structure appears to be blocking further investments by Sprint Nextel. By leaving its network enhancements open to 2.5 GHz spectrum, Sprint Nextel seems to be future proofing its options.
In addition, Clearwire has been trialing LTE services in the Phoenix area using its 2.5 GHz spectrum band and has shown network speeds in excess of 90 megabits per second when using a 20 x 20 megahertz spectrum channel for LTE.
While traditional CDMA technology has been hit recently with claims that it was nearing the end of its domestic dominance, Sprint Nextel’s network plans look to be extending the technology for the foreseeable future.
“While this announcement and the strategy behind it won’t solve all of Sprint’s problems, it will go a long way towards dealing with the multiple-network issue and will also help to improve Sprint’s financial performance and competitive positioning,” said Ovum’s Dawson.
iDEN clock is ticking
Sprint Nextel’s current iDEN operations that occupy its 800 MHz and 900 MHz spectrum holdings will be a victim of the new plan as the carrier said it will start phasing out the iDEN services beginning in 2013. Sprint Nextel’s Elfman added that the process could be completed by 2017, though that would be dictated by how well the other aspects of the network upgrades proceed.
The iDEN network served about 11 million customers, or nearly one-fourth of Sprint Nextel’s entire customer base at the end of the third quarter, but has been steadily losing customers since Sprint Corp. acquired Nextel Communications Inc.
Sprint Nextel said it will plan on enhancements to its CDMA network that will allow customers to continue using push-to-talk services that have been the staple of the iDEN service. The carrier offers so-c
alled “Powersource” devices that allowed CDMA devices to communicate using the PTT service with iDEN devices using Qualcomm Inc.’s QChat service.
The carrier did note that it was currently trialing CDMA technology using some of the 800 MHz spectrum that the carrier is currently in the process of unifying through an extensive rebanding plan that will leave the carrier with 14 megahertz of contiguous spectrum in the 800 MHz band. Those tests are for CDMA voice services that would provide better in-building coverage, with Sprint Nextel saying it could deploy one CDMA voice channel in that spectrum band and still support its iDEN services.
The move to ditch iDEN could also prove a hit for Motorola Inc., which has been the exclusive provider of the iDEN infrastructure and devices since Nextel’s inception.
“The iDEN network and the associated customers have become something of a millstone around Sprint’s neck in recent years, and finally having a roadmap for solving that problem is a big step forward,” said Dawson.
Tower consolidation
Sprint Nextel has previously noted that it was looking to decommission around 20,000 of its more than 60,000 cell sites as part of its network upgrades, most of this coming from current iDEN and CDMA coverage redundancy as well as the use of 800 MHz spectrum for its CDMA operations.
Sprint said it will likely incur additional rent charges on its towers as it transitions from its legacy operations to its new network.
Macquarie Equities Research noted earlier this year that an extensive network update by Sprint Nextel could garner a near double in cell site radius in some environments
Sprint Nextel’s plans to deploy CDMA voice channels in its 800 MHz assets could also be helped by the carrier deploying CDMA2000 1x-Advanced technology that is expected to provide double the voice capacity of traditional CDMA2000 1x technology.
What about the Chinese
One segment left out of Sprint Nextel’s upgrade plans were Chinese vendors Huawei Technologies Inc. and ZTE Corp., which were rumored by some to have put in the least expensive bids for the project. However, recent reports indicated that the U.S. government had contact with Sprint Nextel executives indicating that they would prefer that the Chinese vendors be excluded from providing network equipment to a carrier with broad government contracts.
“I think this was a significant and real opportunity for the Chinese vendors, but with Sprint supplying current government agencies there were concerns on behalf of Sprint about potentially losing that business,” noted PRTM’s Hays. “Also, there would have been a battle in congress as well as in the court of public opinion.”
Hays noted that while the Chinese firms were not able to gain a piece of the Sprint Nextel contract, having those vendors in the bidding process probably allowed Sprint Nextel to leverage a lower cost from those vendors selected to perform the upgrades.
“I think other carriers welcome the likes of Huawei and ZTE in the bidding process, but think longer term there are still questions about support for equipment from those vendors,” Hays said.
Huawei and ZTE have managed to secure significant contracts with smaller operators, including Clearwire and Cox Communications, but remain limited on deals with larger operators.
By contrast, Samsung’s piece of the Sprint Nextel contract continued the company’s place in the market as the company is also supplying LTE equipment for MetroPCS Communications Inc. and a recently announced deal with rural operator Cellular South.
If anything, Hays added that the deal solidifies Ericsson and Alcatel-Lucent as the major winners of domestic contracts as both companies are now involved with network upgrades for the nation’s three largest operators.
Investors seemed to take the network upgrade plans well sending Sprint Nextel’s stock up nearly 9% during the day on Monday to as high as $4.26 per share.
“Both investors and customers should take heart from the announcement as an indication Sprint is on the right track, but they shouldn’t expect overnight improvements in either network or financial performance,” said Ovum’s Dawson.