Sprint Shoots for the Moon

The past few months have seen Sprint Nextel (NYSE:S, news, filings) all over the headlines on a weekly basis. It has seemed haphazard, but if one takes a step back and looks at it all as a package it’s really not. They’re playing hearts and they’ve spotted a chance to shoot the moon. Look at all their moves over the past few months as a group:

• Flirting with LightSquared despite the ambiguity of that buildout even happening
• Bringing the iPhone in by betting a fortune in subsidies that will burn cash for years in what seems a desperate move
• Turning its back on Clearwire in announcing its own LTE buildout, perplexing every analyst out there
• Throwing Clearwire a bone in the form of a non-binding agreement that they’re working on an agreement
• Now raising $4B in rather expensive capital, earmarking a piece for funding Clearwire’s LTE buildout

It’s like they want everyone to think they don’t want to get stuck with the queen of spades (Clearwire), but actually they do. Meanwhile they are intently looking hapless –fighting with Clearwire, laying dubious trails with LightSquared, waiting until October to tell anyone what their network vision is and then only telling an incomprehensible half-version of it.  The iPhone move was the wake-up call though, and now the plans to raise $4B in new capital has made it clear they have had all of this in mind for some time, but have been unwilling to tip their hand. Think what they’re going to have if all this works out right:

• The iPhone – Sprint is betting a fortune in subsidies to bring the iPhone to its network. Some have described the cash flows required by this plan as reckless, but one simply cannot retake as much marketshare as Sprint needs to without the iPhone in your portfolio. Not the iPhone 4S, but the inevitable 4G-enabled iPhone that we all know is coming next year.
• *Three* parallel but asynchronous network buildouts.  If things go well they could leapfrog Verizon with a frightening rapidity. The ideal progression goes a bit like this: 1) Sprint funds Clearwire, which brings LTE to its current crop of major markets far quicker than Sprint themselves could, 2) Meanwhile, Sprint focuses on building out a complementary set of smaller LTE markets to bring the combined coverage up to match that of Verizon, and 3) If they finally get approval, LightSquared is encouraged to fill in additional geographical gaps first while providing backup capacity depth elsewhere.
• Leveraged spectrum – The eventual scaling of LTE and later LTE-Advanced networks to a hundred million video-hungry smartphones and tablest is going to stretch available spectrum to its limits. By keeping Clearwire at arms length but no more while simultaneously signed up to lease capacity from LightSquared and freeing up their own iDEN spectrum, they’ve really got much more raw bandwidth potential than anyone.   And if Clearwire and/or LightSquared goes under during the process, Sprint is right there to just pick up the pieces.
• The unlimited plans – With all that spectrum at hand, Sprint is in a better position to offer effective unlimited 4G bandwidth than the competition.  They’ve refused to back off their unlimited offers except for tethering recently. How better to take share back from Verizon and AT&T than to forward-price raw bandwidth?
• Their wireline business – What’s the only way it makes sense for Sprint to keep its declining wireline business rather than raise a few billion dollars by selling it while it’s still worth that much? If wireless data off its own networks explodes, then having a smaller but EBITDA positive Tier 1 IP backbone may be required to scale it properly. Maybe they just don’t give a crap about the corporate and wholesale revenues they’re churning off, because it’s all about scaling LTE a few years down the line.  We’ll know if they go out and buy or partner with a mobile-focused CDN to merge with it.

There is actually control in there that could be enough to catapult Sprint back into the game…  if they don’t run out of cash sources first, and if not one heart slips out of their grasp and leaves the plan incomplete.

Sprint has no intention of making the economics of any of this work any time soon.  They’re trying to shoot the moon, preparing a land-grab of epic proportions.  It’ll never work, unless of course it does.

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Categories: Wireless