BTIG Research is the latest analyst firm to question Sprint's (NYSE:S) move to cut spending on its network.
Sprint last week lowered its capex guidance for the rest of the year to roughly $3 billion, far below analysts' estimates in the range of $4.5 billion. Analysts were quick to point out that Sprint had previously issued a capex guidance of $15 billion over three years, which would imply annual spending in the range of $5 billion per year.
BTIG analyst Walter Piecyk noted that the recent guidance followed Sprint's move to cut 27 percent of its capital budget in fiscal year 2015.
"We think Sprint's aggressive cut to capital investment and continuing lack of evidence on any activity to improve its network raise red flags about the company's strategy," Piecyk wrote. "This low level of capital investment was last seen in 2008/2009 during the financial crisis. While it's true that small cell investment is largely expensed rather than capitalized, we have observed virtually no evidence of Sprint's network activity over the past year. Tower company SBA noted that Sprint canceled plans to place 2.5 GHz radios on existing towers."
Sprint's network strategy has been the subject of much speculation since Recode reported in January that the carrier was moving forward with plans of a "radical overhaul of its cellular network." The company planned to save as much as $1 billion, according to the report, by leveraging small cells and relocating its towers from space leased by Crown Castle and American Tower to government-owned land where rent is cheaper.
Sprint CEO Marcelo Claure has since said "the information wasn't correct" in that report, and last week he noted that small cell deployments often require the approval of local governments and that can take time, which could lead to deferred investments in the network. But the guidance Sprint issued last week has concerned analysts from multiple firms.
"We are skeptical of CEO Marcelo Claure's claim that the heavy lifting on network investments was completed with Network Vision, one of Sprint's many prior network modernization plans," Piecyk wrote. "We have been using a Sprint phone and an AT&T phone for the past few months and find Sprint to be both less reliable and slower than AT&T -- and not by the small amount often reflected in the Root Metric scores wireless operators like to tweet about. The Sprint phone performs quite well when next to an infrequent small cell or 2.5 GHz deployment, but given the small footprint of these locations, the phone quickly reverts to the limited speeds offered by Sprint's 5x5 MHz LTE deployment."
Piecyk acknowledged Claure's suggestion that red tape and other challenges can hinder small cell installations. And he questioned whether Sprint has the right partners in place to succeed with a network strategy that leans more heavily on small cells and less on traditional macrosites.
"As far as we can tell, Sprint's network strategy is reliant on one company -- Mobilitie," Piecyk observed. "Yet, we continue to hear reports about Mobilitie's failed attempts (under various aliases) to use rights of ways to locate small cells. We are therefore not surprised that Claure is still talking about zoning and permitting for small cells. This may have worked in Japan (or even for Google in its early deployments of Google Fiber), but we are skeptical that Mobilitie can execute in the United States."
But Mobilitie CEO Gary Jabara took issue with those claims, noting an industry-wide move toward small cells as carriers densify their networks. Small cells are more economical than large cells, Jabara said, enabling operators to build out their networks more affordably and more intelligently than they could before.
"It's massive; all the carriers are doing it," Jabara said of small cell deployments. "It's a massive migration away from traditional vendors, traditional technologies, traditional solutions. It's so much more reasonably priced from a capex experience."
- see this BTIG research note
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