Sprint Announces Aggressive LTE Plans

As part of its Network Vision strategy, Sprint has made the expected switch to LTE from WiMAX as the carrier gets ready to sell the iPhone 4S in order to increase its post-paid net additions and lower churn, which have both lagged behind its two main competitors in recent quarters (see table).

Sprint’s plan will consolidate multiple technologies and bands within one network, which the carrier believes will save up to 50% of capex costs, but the move to LTE will cost an estimated USD4-5 billion, delivering between USD10 and USD11 in value by 2017. Sprint will use its own spectrum for the network, first using its 1,900-MHz spectrum and adding the 800-MHz spectrum freed from iDEN, as well as the 1,600-MHz spectrum that is part of its agreement with LightSquared (see United States: 29 July 2011: Sprint Announces 15-Year Deal with LightSquared As Losses Widen). Sprint will launch its LTE network in mid-2012 with dual-mode CDMA-LTE devices, and plans to cover 120 markets by the end of 2012 and 260 by the end of 2013, or more than 277 million Americans, thus accelerating by two years its earlier 4G plans. The carrier will continue to support WiMAX as part of its agreement with Clearwire until 2012 and will look at future opportunities with its subsidiary (see United States: 20 April 2011: Sprint, Clearwire Agree New USD1-Bil 4G Wholesale Agreement).

Outlook and Implications

• Competitiveness Key to Sprint: The iPhone 4S launch and the move to LTE both have the same rationale, which is to make Sprint much more competitive in the US wireless market. As the table above shows, Sprint has been struggling in terms of post-paid churn and net additions as it couldn’t previously offer the iPhone to its customers. The new availability of the device should at least bring churn down as current customers won’t migrate to the same level as before. Sprint’s LTE plans will also bring much greater competition in the US, especially thanks to its accelerated roll-out plan where the carrier will now have nationwide coverage in 2013 and not 2015, which matches Verizon’s own plans to cover 97% of the population with its network by 2013. While AT&T has promised to match Verizon, its initial roll-out of five cities, to be expanded to 15 by the end of 2011, will need to be greatly accelerated in order to not be left behind. AT&T is possibly still awaiting the outcome of its merger bid for T-Mobile, whose rationale is to increase LTE coverage thanks to more spectrum, and it is interesting to note that despite not owning any 700-MHz frequencies, Sprint has decided to prioritise the spectrum it owns (1,900 MHz and 800 MHz) above the spectrum it hosts (LightSquared’s 1,600 MHz) and the wholesale spectrum it has access to (Clearwire’s 2,500 MHz).

• Clearwire and LightSquared: Sprint did not say much about its subsidiary, but the issues that have plagued the two companies mean it is unlikely that a further deal will be agreed after 2012. Clearwire is also moving to LTE, where it can use its 2,500-MHz holdings, but it has said it needs an extra USD600 million just to migrate its current customers and it is unlikely that Sprint will be willing to part with cash when it is itself building its own network (see United States: 4 August 2011: Clearwire to Offer LTE, Continues Transition to Wholesale). However, the two companies have not burnt their bridges and there could be a way back depending on the Federal Communications Commission’s decision to allow LightSquared’s network to launch as there remains regulatory uncertainty and Sprint did announce the right to terminate the agreement by the end of the year (see United States: 27 September 2011: LightSquared Inks New Deal in Pursuit of Favourable Regulatory Decision). Should this happen, Sprint could be looking to Clearwire to boost its capacity.

• Financial Impact: While this is a good strategy in the long term, many doubt Sprint’s decision in the short term as the company would use its cash reserves to pay for the roll-out. Profitability has been an issue for Sprint and rolling out an entire new network while offering the iPhone, which is likely to be successful and would mean greater subsidies from the carrier, would further hit its margins. Sprint has said the network will cost USD4-5 billion and it expects to be positively impacted by 2014, which is why the key for Sprint is surviving in the short term. Its deal with LightSquared brings it an extra USD1 billion a year, while it will save an extra USD1 billion with the end of its agreement with Clearwire, while iPhone usage should also bring higher ARPU and revenues in the medium term. Furthermore, the Network Vision plan is all about creating network efficiencies and lowering cost per GB by up to 50%, so it could also attract more customers through the strength and breadth of its data network.

• LTE Spectrum Fragmentation: Sprint has plans to use three bands for its LTE network; the 1,900-MHz band; the 800-MHz band once it is cleared from Iden; and LightSquared’s 1,600-MHz, with the possibility of Clearwire’s 2,500-MHz holdings should things not go entirely to plan. This adds to an already wide range of LTE frequencies worldwide, which include the 700-, 900-, 1,800-, 2,100 and 2,300-MHz bands. This fragmentation will make LTE roaming even more complicated, especially as it is sometimes not possible to roam within the same frequencies, as is the case for AT&T and Verizon’s 700-MHz holdings. Adding the fact that VoLTE (Voice over LTE) has yet to become a full standard, meaning that voice will continue to be carried over 2G or 3G networks, this combination of multiple technologies and bands makes it difficult for handsets vendors to create a “world phone” as chipsets and battery technologies are not advanced enough to create a good quality of service for the user. It is likely than in the short term LTE smartphones will be exclusive to one carrier or market as economies of scale remain difficult, which is why a full LTE iPhone is unlikely in the short term unless vendors go one step further and use their VoIP service to customers.