Sprint (NYSE:S) is seeing its fortunes turn around on the iPhone, but the company's future success lies in its ability to cash in on data services, which is at odds with its unlimited plans.
Nearly 30 million Americans, or one in six mobile users, experienced "bill shock," a sudden and unexpected jump in monthly cellular bills, and the Federal Communications Commission is battling to combat the problem.
AT&T and Verizon are battling it out for claim to the fastest 4G service, and consumers are left scratching their heads. Which one is faster? The answer is, it doesn't matter.
Sprint's struggle to succeed under the weight of its iPhone deal has analysts worried about the carrier's ability to sell and support Apple's device.
Investment management firm Sanford C. Bernstein downgraded Sprint's stock to "underperform" from "market perform" based on a forecast that the company won't be able to sell enough iPhones to meet its $15.5 billion deal with Apple.
The situation may get worse when the next iPhone comes out this fall. Since the iPhone 5 is likely to run on 4G LTE, a network Sprint is not equipped to support, the company will have a hard time moving the newly released devices at the same pace of its rivals, Verizon and AT&T. Sprint either has to figure out how take hold of LTE-enabled spectrum, risk losing the sales it needs to meet its obligation to Apple, or else face potential bankruptcy-inducing financial trouble.
The Sprint downgrade comes in response to potential problems with its Apple contract. Analyst Craig Moffett from Bernstein says Sprint has to sell about 7.5 million iPhones a year to meet its $15.5 billion contract. So far, however, sales of the device have not stayed on pace to do so and shares of Sprint stock are already down 46 percent over last year. That disadvantage, he says, will only increase when Apple rolls out the iPhone 5 due to Sprint lagging on LTE development.
"The network will be barely started at a time when Verizon is now two years into building their LTE network and AT&T is about a year and a half into building their LTE network, so suddenly Sprint will find itself once again behind the eight-ball at a time when they have a huge take or pay commitment," said Moffett on Bloomberg Television's "Taking Stock."
But Sprint is trying to prepare for iPhone 5 by capping data of other users as it tries to build up its network potential and increase data speeds. Even if the release does bring in new customers, Sprint holds a narrow spectrum band that will need to support heavy data usage.
Sprint's deal with Apple caused concern with investors before as a high-risk strategy, putting pressure on the carrier to sell around 30 million iPhones in the next four years. Moffett says bankruptcy is far from a given, but is a legitimate risks because of Sprint's debt obligations and market performance. Meanwhile, Verizon is making headway expanding its LTE network, setting up for successful data use on iPhone 5.
Sprint bankruptcy is far from a certainty, but the debt-ridden, third-place carrier is in a precarious spot as it tries to keep up with more advanced and resourceful companies. The iPhone 5 release could help Sprint meet its obligation, but Sprint faces tremendous pressure to support it to keep shareholders positive about its future.
Sprint's struggle to succeed under the weight of its iPhone deal has analysts worried about the carrier's ability to sell and support Apple's device.
Investment management firm Sanford C. Bernstein downgraded Sprint's stock to "underperform" from "market perform" based on a forecast that the company won't be able to sell enough iPhones to meet its $15.5 billion deal with Apple.
The situation may get worse when the next iPhone comes out this fall. Since the iPhone 5 is likely to run on 4G LTE, a network Sprint is not equipped to support, the company will have a hard time moving the newly released devices at the same pace of its rivals, Verizon and AT&T. Sprint either has to figure out how take hold of LTE-enabled spectrum, risk losing the sales it needs to meet its obligation to Apple, or else face potential bankruptcy-inducing financial trouble.
The Sprint downgrade comes in response to potential problems with its Apple contract. Analyst Craig Moffett from Bernstein says Sprint has to sell about 7.5 million iPhones a year to meet its $15.5 billion contract. So far, however, sales of the device have not stayed on pace to do so and shares of Sprint stock are already down 46 percent over last year. That disadvantage, he says, will only increase when Apple rolls out the iPhone 5 due to Sprint lagging on LTE development.
"The network will be barely started at a time when Verizon is now two years into building their LTE network and AT&T is about a year and a half into building their LTE network, so suddenly Sprint will find itself once again behind the eight-ball at a time when they have a huge take or pay commitment," said Moffett on Bloomberg Television's "Taking Stock."
But Sprint is trying to prepare for iPhone 5 by capping data of other users as it tries to build up its network potential and increase data speeds. Even if the release does bring in new customers, Sprint holds a narrow spectrum band that will need to support heavy data usage.
Sprint's deal with Apple caused concern with investors before as a high-risk strategy, putting pressure on the carrier to sell around 30 million iPhones in the next four years. Moffett says bankruptcy is far from a given, but is a legitimate risks because of Sprint's debt obligations and market performance. Meanwhile, Verizon is making headway expanding its LTE network, setting up for successful data use on iPhone 5.
Sprint bankruptcy is far from a certainty, but the debt-ridden, third-place carrier is in a precarious spot as it tries to keep up with more advanced and resourceful companies. The iPhone 5 release could help Sprint meet its obligation, but Sprint faces tremendous pressure to support it to keep shareholders positive about its future.
Sprint is officially parting ways with LightSquared, leaving the carrier looking for new ways to establish a formidable LTE network.
The Overland Park, Kan.-based company is abandoning its 15-year agreement to share LightSquared's LTE service, after the Federal Communications Commission denied the start-up company a license to build out its network. LightSquared is now left without its primary partner, and Sprint must scramble to keep up with competitors in the 4G race.
Nearly all of Sprint's plans for a LTE network were tied to LightSquared's success. If Sprint's former partner was able to move ahead with its plans, the carrier would be in solid shape against its competition. Unfortunately, now that the deal between the two companies is dead, Sprint has lost precious time and resources, leaving the carrier far behind Verizon and AT&T.
Sprint's scrapped plans with LightSquared is the latest in a series of failed attempts to bolster its 4G network. The company's board denied its plans to purchase prepaid provider MetroPCS earlier this year according to the Wall Street Journal, a move that would have brought in much-needed spectrum. Sprint also was in talks with T-Mobile to begin a network-sharing agreement before differences between the two sides stalled discussions.
The third-place carrier was actually the first to offer a 4G network in the U.S, but it did so using WiMax technology with its partner Clearwire. As LTE emerged as the format of choice for next-generation speeds, Sprint was left with an inferior network that no longer gave the company an edge and finds itself now waiting for Clearwire to convert to LTE.
Sprint hopes the spectrum it does have will fuel building its LTE network to cover 120 million people by year's end, and to nearly 250 million by the end of 2013. However, as the company's subscriber base continues to grow, spectrum will be vital to sustain speeds, and it may be difficult to find sellers of the limited resource. While Sprint bet on LightSquared, AT&T and Verizon courted cable companies for their unused spectrum and the two carriers now appear to have cornered that part of the market.
Sprint's LTE network will continue to grow in the short-term, but the carrier is under tremendous pressure to find another spectrum partner to respond to growing demand for the faster service or risk losing customers.
Sprint CEO Dan Hesse's job may be in jeopardy, as investors fear his strategy with the iPhone and 4G LTE is failing to reverse flagging company fortunes.
Hesse's leadership worries Sprint's investors, according to a report by the Wall Street Journal. Hesse gained credibility for his efforts to stem losses following Sprint's ill-received merger with Nextel. However, sources suggest the CEO's job is up in the air following a series of missteps, and Sprint's board shows little faith in Hesse's command as they step in to manage the company.
Sprint paid a hefty fee to carry the iPhone, viewing the high costs as a necessary evil to compete with AT&T and Verizon, which both carry the device, but Apple's signature handset is failing to boost the company as expected. The iPhone attracted new subscribers, but the high cost of subsidizing the handset means payoffs are still further down the road.
Hesse pushed hard for the iPhone, but investors want to see returns now. Also, Sprint failed to secure the new iPad, and investors are questioning the value of Hesse's Apple gambit in light of missing out on the most popular tablet offering so far this year. Apple began selling the LTE-capable device through AT&T and Verizon, Sprint's biggest rivals, but Sprint could not support the device without a workable LTE network.
Sprint's inability to sell the LTE iPad points to another huge crisis in Hesse's leadership: the CEO's failure to secure spectrum. Sprint bet big on its deal with LightSquared, but the Federal Communications Commission axed the merger over concerns of GPS interference.
Without LightSquared, Sprint is scrambling to strengthen its network, and the spectrum squeeze is likely to affect the company's LTE network rollout as well as future devices it carries.
Hesse did navigate a successful deal with Clearwire, but it may not be enough to expand LTE capabilities in time to effectively compete against AT&T and Verizon, meaning possible delays for rolling out Sprint's three announced LTE devices.
As AT&T and Verizon pick off smaller spectrum deals, Sprint faces a dwindling group of potential allies, making Hesse's moves in spectrum acquisition all the more vital and time-sensitive.
The investor pressure does not bode well for Hesse. The Sprint CEO is pursuing a company turnaround through a myriad of endeavors, but investors are tiring of waiting for results from Hesse's efforts, and may seek more immediately gratifying leadership.
Apple left Sprint out of the party once again with the launch of its new LTE-capable iPad, putting the carrier at a major disadvantage to attract data-hungry subscribers.
The Cupertino, Calif.-based company will launch its new LTE iPad on March 16 for Verizon and AT&T's networks, the same carriers that the iPad 2 supported. The two providers have the largest networks in the U.S. and will give Apple's new device the fastest possible speeds.
Many analysts thought Apple would also launch a version of the new iPad that supported Sprint's network, due to the tech giant's decision to give the carrier the iPhone last year. However, issues with Sprint's LTE network are likely the main reason the tech giant decided against releasing an iPad that's compatible with the carrier's service.
Sprint's LTE network is practically non-existent and shows no signs of evolving into something more competitive in the near future. The carrier's next generation network is far less developed than AT&T or Verizon's, and its plans to expand with the startup company LightSquared fell through after the Federal Communications Commission cited concerns over GPS signal interference.
Apple is very careful to choose its business partners to ensure the best possible performance and consumer perception of its products, and a marriage of the iPad on Sprint's network does not hit the company's high standards at this time. The iPad maker could have released a different version of the tablet that would run on Sprint's 3G network, but one of the biggest selling points of the new model is its ability to produce LTE speeds.
Sprint's inability to offer the iPad puts the carrier at a disadvantage in the quickly emerging tablet market. The devices have become moneymakers for wireless providers due to their demand for data service, and Sprint is now out in the cold, excluded from offering the tablet that represents more than 70 percent of the current market.
The third ranked carrier is now left without the iPad, and more importantly, without a viable LTE network. If Sprint does not find a way to turn around the prospect of its next-generation service, it will likely miss out on more new devices in the future, creating a competitive disadvantage that will be nearly impossible to overcome.
Sprint plans to cut ties with LightSquared, raising questions about how the carrier intends to weather the spectrum crunch.
Bloomberg reports Sprint intends to end its network-sharing agreement with LightSquared after the Federal Communications Commission barred its planned network because of potential interference with crucial GPS networks. LightSquared is still trying to overcome its regulatory hurdles, but Sprint's decision indicates the potential partnership is finished, and the carrier will focus on more fruitful spectrum deals.
LightSquared received a 30-day extension to find a solution to its problems, but sources say Sprint is unwilling to extend it further. The carrier may be acting prudently by nixing the arrangement, as LightSquared has not made much progress finding a workable solution.
The LightSquared decision comes at a time when demands on Sprint's network are increasing, making its need for airwaves more urgent. Sprint still boasts an unlimited data plan, and uses the package to differentiate itself from leading carriers like Verizon and AT&T. The company also now carries the iPhone, which allows for greater data consumption, so boundless data use is likely to overwhelm the network.
The decision may also impact Sprint's scheduled 4G LTE rollout, since it leaves the carrier without a partner able to support the system. Sprint is expected to rely on its spectrum agreement with Clearwire to pick up the slack, but Clearwire's LTE system isn't set to debut until 2013.
The carrier is considering an agreement with T-Mobile, but the companies will have to tread carefully to avoid an FCC rejection. Last fall, AT&T's proposed acquisition of T-Mobile's failed to win regulator approval because of anti-trust concerns.
In the wake of the scuttled T-Mobile deal, AT&T joined Verizon in turning attention to smaller spectrum acquisitions as Sprint waited on LightSquared. Now Sprint faces a shrinking field of eligible allies, making the company's next moves especially crucial, as every major carrier scrambles to gain more spectrum.
Sprint's upcoming split with LightSquared leaves the carrier free to pursue other spectrum partners, as the company's promoted data plans will soon overwhelm its networks without added bandwidth. Sprint will be in a competitive marketplace in its spectrum search, joining other carriers trying to do the same thing, the very situation the company hoped to avoid with its prospective LightSquared partnership.
Sprint is left scrambling for spectrum, inhibiting its long-term expansion, after the Federal Communications Commission rejected LightSquared's broadband network plan.
The federal agency, which had earlier given LightSquared's proposed network conditional approval, said the company's plan would interfere with GPS receivers.
The FCC's decision leaves Sprint without a network provider for its planned 4G LTE rollout. Last month, Sprint gave LightSquared a 30-day extension to push its proposal past regulators. Since that effort failed, the agreement between the two companies will likely fall apart.
Sprint, facing the same spectrum crunch as its rivals, now must look elsewhere for the bandwidth it needs to catch up with Verizon and AT&T in the 4G race. The carrier will likely lean on its agreement with Clearwire to meet immediate spectrum needs, but Clearwire isn't expected to roll out LTE before 2013, hindering Sprint's ability to compete for today's fastest devices.
On a deeper level, the FCC's ban of LightSquared's network removes a potential solution to the overall spectrum strain faced by the wireless industry. LightSquared can't use satellite-phone transmission networks to build out spectrum, and neither can any other company, at least until someone solves the issues surrounding GPS signals.
The FCC also potentially set back its own agenda with this decision. The agency aims to make more spectrum available for mobile devices, further competition in the wireless industry, and ensure fair pricing for consumers by allowing more carriers and broadband providers to innovate in the wireless market.
The regulatory decision leaves the mobile industry short a potential competitor and removes a viable option for spectrum gain, ultimately allowing Verizon and AT&T to stay dominant by hampering the competition.
The balance of power swings in favor of GPS companies with the FCC ruling, suggesting that the industry gained lobbying power through its use by powerful public safety industries, including the military and aviation, which spoke out against the LightSquared deal.
"GPS manufacturers have been selling devices that listen into frequencies outside of their assigned spectrum band, namely into LightSquared's licensed band," said Jeff Carlisle, LightSquared's executive vice president for regulatory affairs and public policy, on the company's blog this week. "The GPS industry has leveraged years of insider relationships and massive lobbying dollars to make sure that they don't have to fix the problem they created."
The FCC implied in its decision the GPS industry carries its own responsibility for helping untangle spectrum rights, suggesting GPS companies and ventures like LightSquared that hope to use satellite bandwidth must work out a deal on their own.
LightSquared disagrees with the FCC ruling and disputes the test results the agency employed in making its decision, and has asked the agency to step in and set standards for GPS reliability.
The FCC's ban on LightSquared's proposal leaves Sprint in particular, and the wireless industry as a whole, floundering for more spectrum, potentially hindering wireless industry growth and competition.
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