Sprint's (NYSE: S) network spending is slowing down in advance of its announcement of a major new network densification project, but will ramp up later this year and into 2016 and beyond, according to a research note from analysts at investment bank Jefferies.
In a research note, Jefferies analysts George Notter and Norah Kennedy noted that Sprint's project is still in the planning phase. "We've heard different figures regarding the overall size of the project," they wrote, based upon recent conversations with industry contacts. "Regarding timing, deployments under the new program will likely begin in late 2015/early 2016 with the project spanning into 2017 and perhaps later."
Meanwhile, they wrote, "we're told that Sprint's current overlay work with 800 MHz and 2.5 GHz are slowing down materially in advance of the new program. As such, we expect that Sprint's business trends might look slower for the vendors of late."
Sprint confirmed in June it received approval from parent company SoftBank to proceed with its massive network densification program, dubbed the "Next Generation Network" strategy. However, the carrier has stayed mum on the details and is still working on selecting vendors. The carrier has issued an RFP for the network work and is currently evaluating proposals. Sprint CEO Marcelo Claure and other Sprint executives have declined to reveal exactly how many small cells and macrocells Sprint is planning to add to its network. Sprint is aiming to use the project to dramatically improve its data performance and speeds and enhance its LTE coverage. Analysts expect the project will lean heavily on small cells.
Moody's Investor Service reaffirmed its Ba1 credit rating for SoftBank but noted that going forward it will include Sprint in its assessment of SoftBank's financial strength, "focusing on the consolidated figures albeit that Moody's recognizes that Sprint currently operates as a stand-alone entity with autonomous financing and SoftBank has no announced plan to provide financial support."
"This modification in approach reflects Moody's view that as Sprint's credit quality comes under increasing pressure and given its sizeable initial investment, we cannot now rule out the possibility that SoftBank will at some point provide direct support to Sprint, should it be required," Moody's wrote in its assessment. "Despite recent improvements in customer retention and subscription, it may still take some time for Sprint's credit metrics to show a clear improvement."
In general, the Jefferies analysts see carriers' networking spending as "a bit slower overall," and though they expect spending trends to have improved seasonally in the second quarter, they "would not be surprised if the Q/Q improvement tracked below seasonal norms."
AT&T's (NYSE: T) networking spending "is relatively slow right now," but improved from the first quarter and the "awful spending trends experienced during the back half of 2014." In wireless, spending trends are fairly slow with AT&T's planning for its network in Mexico "proving to be a significant diversion internally for the U.S. pieces of the wireless network." However, the analysts also think AT&T will "begin another wireless capacity expansion program" in the third quarter, perhaps a reference to AT&T's planned deployment of its 2.3 GHz WCS spectrum for LTE.
- see this Investor's Business Daily article
- see this Moody's post
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