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William Ho |
Those of a certain era remember the comedian Rodney Dangerfield. He is memorable for making a standup comedy career around the line, "I don't get no respect." For the last couple of years, some have viewed Sprint as the Rodney Dangerfield of wireless. Indeed, the carrier has seen mostly negative press and perception ranging from subscriber losses to poor network execution to unfortunate technology selection, to M&A problems, and the list goes on. Add in a negative macroeconomic environment, unprecedented competition and some bad luck contributed to keeping Sprint down. Losing the third largest U.S. carrier title while competitors enhanced their subscriber bases quarter after quarter only increases the sting, but perhaps strengthens Sprinters' resolve.
Here's how I think Sprint got to its "no respect" predicament:
The merger
Much has been written (and armchair quarterbacked) about the failed Sprint and Nextel merger -- the culture clashes, operating two disparate technologies, unanticipated integration problems and the synergies that never appeared. This December marks the 11th anniversary of the Sprint-Nextel 'Merger of Equals' announcement and, in my view, this was the beginning of the many years of Sprint trying to extricate itself from a widening pool of quicksand. Immediately after announcement, Sprint affiliates and Nextel Partners took a costly toll for additional billions of dollars. The merger is the root cause of many of Sprint's travails today.
The network
Under this umbrella topic, there are many smoking guns that caused so much turmoil.
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iDEN -- Technology was the underpinning of the Nextel network that drove the highest-ARPU-bearing customers in the industry. However, in a data-centric future, iDEN didn't have a broadband upgrade path and therefore no place in a new network. Yet with loyal PTT users, Sprint did its best to migrate them to the more efficient CDMA platform. The iDEN network ran for about eight more years since the merger until June 2013. Still, operating the legacy PTT network while providing and upselling 3G data (remember PowerSource?) to these users proved challenging. Enterprise customer account losses mounted even post-iDEN shutdown, showing up in later quarters. Former Sprint CEO Dan Hesse called the Nextel network, "the gift that keeps on giving."
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Rebanding -- Nextel's 800 MHz iDEN operation and its interference with public safety was a known issue before the merger. Rebanding was the process to relocate and swap some of public safety and Nextel/Sprint's 800 band. The process that had been agreed to with the FCC in 2004 still continues today, more than 10 years later. Sprint footed most of the reconfiguration costs. In trade, Sprint received the G-Block of PCS spectrum in which it runs its narrow and speed-limited LTE. Though 800 LTE is also coming online, that 800 spectrum is also split with CDMA technology, preventing any great speed capability against competitors.
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WiMAX -- Though Sprint's intention in selecting WiMAX technology in 2006 was to position itself several years ahead in mobile broadband race beyond 3G (i.e., EV-DO and HSDPA), its unused 2.5 GHz TDD spectrum and timing forced the issue. WiMAX was the best standards-based (802.16e) choice with an ecosystem and worldwide operations that was the best choice at the time. Given this, adopting other technology choices from ipWireless' TD-CDMA or Flarion's Flash-OFDM was a no-go. However, with LTE proving out to be the default global mobile broadband technology, Sprint (and Clearwire's) WiMAX investment set the carrier back in money and years. Meanwhile, competitors' LTE networks have surpassed Sprint's in POP coverage and speed in most markets.
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Network Vision -- Introduced at the end of 2010, it was Sprint's strategy to consolidate its bands into the fold for more efficient operation and position Network Vision for spectrum hosting (e.g., presumptuously Clearwire). As part of the plan, the iDEN network was to be discontinued and older CDMA equipment modernized. Sprint executives knew it was an ambitious, aggressive and disruptive plan; the term "rip and replace" was constantly used. But as Hesse recently stated, that in his last year (2013-2014) in which Sprint lost over 3 million customers, the level of disruption was unexpected and painful. During rip and replace, competitors "fed" on the fleeing Sprint subscribers and helped inject a negative perception of the Sprint network. Through Network Vision execution, Sprint would retract from population coverage targets and then keeping mum on detailed future network implementation timeframes, which created an air of uncertainty in many interested circles (e.g., investors, industry analysts, early adopter loyalists, tech journalists, etc.). While Network Vision has been derided for its execution, the consolidation concept holds water as Sprint eventually controlled the 2.5 GHz spectrum through its purchase of Clearwire.
Source: Sprint
Other M&A issues
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Clearwire and its 2.5 GHz spectrum was integral to Sprint's future. While Sprint had 50 percent interest in Clearwire, it needed to control its destiny with full owner's economics. The December 2012 purchase attempt for full ownership triggered a bitter six-month long fight against Dish Network in 2013. For its part, Clearwire executives' and investors' interest was to gain better premium pricing for the company. In the end, Sprint's victory was a huge distraction in executive time and greater capital outlay than anticipated.
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SoftBank was Sprint's white knight in a time of distress, and its support helped solidify the Clearwire acquisition. Still any M&A is fraught with new organizations, merger integration tasks and proving out the projected synergies. As an expected behavioral outcome, productivity slows and employee anxiety increases especially when synergies result in executive exits and employee layoffs (at Sprint and Clearwire) post-merger ad into 2014 and 2015.
- Capital investment beyond Network Vision seemed to be a casualty as Sprint pulled back from its CapEx spending in 2014. Though SoftBank helped with synergistic procurement efficiencies and overall cost reduction, the CapEx budget dropped to $6 billion from the planned $8 billion. The unsuccessful T-Mobile merger attempt also distracted SoftBank network investment. Though the T-Mobile attempt ended in August 2014, it wasn't until June 2015 that SoftBank approved Sprint's next phase of network densification, presumably pushing hard on 2.5 GHz LTE densification. In September 2014, I argued that Sprint needed to step up its 2.5 GHz deployment in order to keep in step with competitors. As of this August, Sprint CTO John Saw promised a surgical and efficient buildout instead of a traditional slow and expensive one. Though Sprint touts improved network capability through RootMetrics reports, it remains to be seen whether this is enough to stimulate more subscriber acquisition for the remainder of the year.
Irony and turnarounds
All this doom and gloom masks one of the most impactful outcomes spearheaded by Sprint: stopping the AT&T/T-Mobile merger. For consumers and businesses that enjoy the vastly improved competitive environment brought on by a highly kinetic T-Mobile, they should thank Dan Hesse. Without his determined opposition, there wouldn't be T-Mobile COE Legere's "uncarrier" strategy. Unfortunately, the result has also been continuous Sprint subscriber losses to T-Mobile for many quarters.
Many look in the short term for Sprint CEO Marcelo Claure to turn Sprint around, yet back in 2008 when Hesse took the reins, he also was trying his own turnaround. His priorities were customer service, promoting the Sprint brand and strengthening its financials. Of the three, customer service improved greatly, spearheaded by Bob Johnson, now Sprint's Chief Experience Officer. Yet the Network Vision execution unfortunately impaired Sprint's brand and network reputation, resulting in churn and a tough environment to gain new subscribers. As such, network improvement is central in CEO Claure's top priorities in his turnaroundm along with presenting the right value propositions to choose Sprint and lowering the cost to serve. All eyes are on this turnaround as Claure has communicated a self-imposed timeline of three to five year years to achieve the turnaround.
Is Sprint getting any "respect?" On the subscriber front, the company has swung from losses to gains and churn is down at company-record-lows as of the last earnings call. Retail distribution increased through the RadioShack partnership and Direct 2 You fulfillment is expanding. There are signs of a turnaround but the heart of the wireless business is the network. Sprint has been touting its 2.5 GHz depth (150 MHz in some markets), two- and three-carrier carrier aggregation for so many years it's monotonous. As others have also observed, Sprint needs to deliver on its network promises and potential.
William Ho is a leading industry analyst, consultant, and commentator at 556 Ventures. He has over 25 years of experience in the fixed, Internet and wireless sectors. Follow him on Twitter @billho888.