Analysts: Sprint's Claure faces network, financial challenges in turnaround push

Sprint (NYSE: S) CEO Marcelo Claure has been on the job for less than three months and has already taken several steps to revamp the carrier's business. However, financial analysts say that, in light of the company's gloomy third-quarter results, Claure will need to be much more aggressive in shaking up Sprint's business model if he wants to return the carrier to subscriber growth and financial profitability.

Claure announced in conjunction with the carrier's third quarter results that Sprint will embark on a new cost-cutting program that it hopes will slash $1.5 billion in expenses, and part of that plan will include cutting around 2,000 more jobs. However, analysts believe that Sprint will need to do more than just cut costs.

During the company's earnings conference call, Claure acknowledged the situation. "I found the business facing some significant challenges [when I arrived], which are laid out in our financial performance, and I am confident however that we are taking the right steps to address these challenges and position the business for long-term success," he said, according to Seeking Alpha transcript of his remarks.

New Street Research analyst Jonathan Chaplin said that Claure needs to make Sprint stand out the way France's Iliad has done with low-cost prices and little advertising, or how T-Mobile has done by abandoning contracts, paying off Early Termination Fees and exempting customers' music streaming from data costs.

"If Claure wants to be the cost leader, he has to change the game. Tweaking around the edges won't cut it," Chaplin told Bloomberg. "All these carriers have changed the game in some way. Claure hasn't done anything spectacular yet."

Claure said Sprint next year might choose to eliminate its phone subsidies, like T-Mobile has done, and only offer phone leasing and financing plans.

Jackdaw Research analyst Jan Dawson told Bloomberg Claure can cut prices more to drive subscriber growth at the expense of margins, or he can hold off on that to build out Sprint's Spark network.

"Neither [option] is particularly attractive, but that's the situation Sprint is in right now," Dawson said. "Both the perception and reality of its network performance right now are way behind competitors, it doesn't really stand for anything in particular in the market, and competing on price is always a dangerous road to go down."

Sprint aims to cover 100 million POPs with 2.5 GHz TD-LTE service by year-end (up from 92 million POPs now). The company also now covers 50 percent of its total LTE footprint with 800 MHz LTE and will complete its 800 MHz LTE buildout next year. The 2.5 GHz network can deliver peak downlink speeds of 50-60 Mbps, but will only cover around a third of the U.S. population by year-end.

Claure said that in 2015 Sprint is "going to continue to expand our 2.5 [GHz] LTE coverage in cities around the country prioritizing markets where we have higher usage and capacity demand." Claure told Bloomberg it could be another year before Spark's coverage density is high enough to start advertising the company's network as the best.

"If you look at what is going on in our network it is getting substantially better," Claure told Reuters on Monday. "We have gone through a major rip and replace of the entire network. It is like starting fresh."

However, it's clear that Sprint and Claure have a long road ahead, both from a network and financial perspective. "The results yesterday poured a bucket of cold water on the idea that margins are going to improve any time soon," Moffett Nathanson analyst Craig Moffett told Reuters.

For more:
- see this Reuters article
- see these two separate Bloomberg articles

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