Analysts: Sprint's network densification plans up in the air, but wireless backhaul could play a key role

Sprint (NYSE: S) has said it plans to massively densify its network via its "Next Generation Network" (NGN) plan and has received approval from parent SoftBank to proceed on the plan. Yet without any visible movement on the plan in the last few weeks, analysts are questioning whether its momentum has stalled.

"We believe that in order for [Sprint] to compete effectively with its competitors, its network quality needs to improve and we look to the NGN as the means for this improvement," Evercore ISI analysts Jonathan Schildkraut and Justin Ages wrote in a research note. "However, despite the approval [Sprint] gained, our channel checks indicate no new capital has been put to work. We think the NGN is being revisited now that [Sprint] has an idea of the large operating expenses."

Last month Sprint indicated it was moving forward with the plan, which it first announced in early May. "Sprint has developed an approved network plan in partnership with SoftBank that will allow for a cost-effective network build on an accelerated timeline," Sprint spokeswoman Adrienne Norton told FierceWireless on June 3. Since then, the company has been largely silent on its Next Generation Network plans.

Norton told FierceWireless today that Sprint plans to "talk about our network plan, including carrier aggregation," on the company's next earnings call, which will likely be in late July or early August. Sprint has not yet announced a date.

BTIG analyst Walter Piecyk wrote in a blog post that "we can only assume Sprint is in ongoing negotiations with vendors to determine relative roles in the new network. We are unaware of any vendor decisions that have been made."

Piecyk added that "Sprint may also need to devise a plan to clean up any mess in the macro cell site network left by former" network chief Steve Elfman "and his Ericsson-driven Network Vision project which failed to deliver on the competitive LTE speeds that he and Sprint's management team promised."

"We expect Sprint to report quarterly results in late July/early August (TBD), which would provide an opportunity to offer more details about its network plan," Piecyk added. "However, given its importance, the network announcement might require its own day dedicated to explain a network plan that might look very different than what investors are used to hearing about. We would not expect a meeting like that to occur prior to reporting the current quarter."

In his blog post, Piecyk noted that "ultimately the future of the stock and frankly the company will be determined by its ability to execute on the new network plan and at what peak levels of debt that will require." Yet he also wrote that despite the uncertainties, Sprint's vast trove of 2.5 GHz spectrum, with an average of 120 MHZ in 90 of the top 100 U.S. markets, continues to be what sets it apart.

"We believe Sprint's unique spectrum depth enables the management team to build a wireless network that delivers differentiated wireless data speeds and would result in market share gains," he wrote. "However, a lack of funding and poor execution have prevented Sprint from realizing those opportunities. Some could cite SoftBank's lack of focus during its pursuit of T-Mobile as an additional factor, but we would simply file that under poor execution."

Small cells are expected to be a major factor in Sprint's NGN plans, according to Sprint executives and analysts. Piecyk noted that small cells are becoming more popular with carriers because they cost less per month than macro cells to maintain in terms of site rental costs. The downside remains getting sufficient backhaul to small cells.

"Unfortunately, the cost and availability of fiber backhaul to connect those small cells back into the network is not likely much different than a macro site and can be costly and difficult to provision," he noted. "Fiber costs can vary by distance from the ring, market and competition. Fiber backhaul prices could rise or decline over time, but connecting a small cell versus a macro site should not have a material impact on fiber pricing. Alternative backhaul solutions may also be limited as the evolution to C-RAN architecture, (which pulls the processing of the cell site into a data center), further increases the need for fiber connectivity to each cell."

Another option for Sprint is wireless backhaul. Piecyk noted that technology companies have been developing compact wireless backhaul solutions using the lower 2.5 GHz spectrum band that would not require line of sight. "We believe this was precipitated by the inclusion of LTE Relay in the features of LTE-Advanced 3GPP Release 10 in 2011," he wrote. "Clearwire was able to effectively use wireless backhaul in its WiMAX networks. If wireless backhaul works across Sprint's entire small cell network it could speed deployment and obviate the need to buy wireless backhaul from the likes of Level 3, Zayo, Crown Castle, Verizon, etc. To be clear, fiber will still play a critical role in a wireless network but can become quite expensive with massive cell densification."

A "robust deployment" of 2.5 GHz spectrum would likely require 50,000 to 100,000 small cells on top the 55,000 macro sites that Sprint has already deployed, Piecyk wrote. "At $1,000/month of backhaul expense, Sprint could save $600 million to $1.2 billion of incremental annual network expense by using wireless instead of fiber," he wrote. "This is a rough estimate though. Fiber costs can vary by distance from the ring, market and competition. In addition prices could rise or fall over time. It is also possible that a portion of the deployed small cells will act as hub for the LTE Relay points to aggregate traffic back into the network over high capacity fiber. Regardless; wireless backhaul would offer substantial savings and provide the speed to market that Sprint desperately needs."

Interestingly, Piecyk noted that AirSpan, a privately held wireless company based in Boca Raton, Fla., which formerly developed WiMAX products, has developed an LTE product that uses 2.5 GHz for both access (the connection between the small cell and the phone) as well as backhaul (the connection from the small cell back into the network.) "The footprint and functionality that AirSpan offers is impressive if it delivers on its promises," he wrote. "That means Sprint would only have to source power to each of these small cell locations. Not surprisingly, AirSpan claims that the product will auto-configure within the existing network requiring minimal network planning. We estimate that AirSpan's low cost product could also likely deliver a footprint of 80,000 small cells for less than $1 billion installed, fitting with Sprint's goals to be 'capex-light.'"

"AirSpan's products can share the same 2.5 GHz for access and backhaul through an inband solution and this is contemplated with LTE," he added. "However, given Sprint's depth of spectrum, it could allocate a chunk of the 2.5 GHz spectrum for backhaul alone, known as out-band."

Sprint is looking to save more money on vendor costs for the NGN plans than it did for tis Network Vision project. Sprint CEO Marcelo Claure said on Sprint's last earnings call in early May that the carrier has "issued RFPs to various vendors to gather information on specific solutions and pricing and we're very pleased with the significant potential savings we are seeing compared to our Network Vision pricing," according to a Seeking Alpha transcript of his remarks.

Sprint CFO Joe Euteneuer said on the call that "ultimately what you see through the initial reads of the RFPs is that we're able to get a lot more done for a lot less along with being able to get favorable financing terms ultimately when we decide on what direction we're going in regards to the final capital program."  

Nokia (NYSE:NOK), a key supplier of 8T8R radios for Sprint's "Spark" deployment for the 2.5 GHz band, is also likely going to play a key role in Sprint's NGN plans. "We suspect Sprint will look to vendors like Nokia, a key supplier of TD-LTE, to offer a complementary solution that fits within their existing network deployments," Piecyk wrote. "It might be preferable, for example, to use a Nokia small cell, within the footprint of a Nokia macro network. As a reminder, Sprint committed to the government that it would not utilize Huawei in its network deployments due to security concerns, a factor that we believe has weighed on the timing and cost of Sprint's deployments."

For more:
- see this BTIG blog post (reg. req.)

Related articles:
Analysts: Sprint's network spending slowing down, but will soon ramp up with densification efforts
Report: LTE infrastructure spending to peak at $23.3B in 2015, then start declining
Sprint CEO Claure meets with Miami's mayor, providing window into future network plans
Sprint CTO Stephen Bye resigns from company amid new network densification program
Analyst: SoftBank's Son taking more active role in Sprint's network as densification planning nears completion
Sprint gets OK from SoftBank to move ahead on network densification plan

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