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William Ho |
Many industry people remember Xohm, Sprint's WiMAX-based "4G" service operating on its 2.5 GHz TDD spectrum. Though the technology is largely a thing of the past and its adoption hotly debated, Sprint saw a chance to race ahead of its competitors with faster than 3G mobile broadband services. As we all know, the bet on WiMAX proved disastrous as the world embraced LTE. Rather than having a year or more lead, Sprint found itself an LTE straggler.
Today's landscape sees larger competitors AT&T Mobility and Verizon Wireless exceeding 300 million LTE POPs covered with their respective 700 MHz assets, while upstart T-Mobile US has aggressively used its AWS and PCS spectrum and is on track to meet 250 million POPs covered by the end of the year.
Though Sprint has already passed the 250 million mark using a small 5x5 MHz sliver of PCS spectrum, rivals implementing 10x10, 15x15 and even 20x20 MHz of bandwidth deliver greater speeds and capacity. While Sprint says that the intensive "rip and replace" of the older CDMA and Nextel infrastructure is largely done, it is still unfinished in the two more important LTE components--800 MHz and 2.5 GHz--of its tri-band Spark strategy. For many years, Sprint has talked up how its 2.5 GHz spectrum holdings, 120-160 MHz deep in some markets, will give it a competitive advantage. Industry watchers continue to wait on its execution while some customers have left for other options. In the context of coverage, Sprint's stated 100 million 2.5 GHz LTE POP target by the end of 2014 just seems inadequate given today's competitive environment.
When Marcelo Claure took the Sprint helm in mid-August, he outlined his priorities: reduce prices, improve the network, and decrease operational costs. Quickly introducing new and reduced pricing plans and promotions of the iPhone launch let Claure check that box, but it's an ongoing process given the competitive backdrop. Decreasing operational costs is also ongoing, but we've seen this played out in some fashion in the CFO Bob Brust era. Recall the "no photocopying" and the offload of 6,000 network operations personnel to Ericsson? Current CFO Joe Euteneuer will surely make his own mark.
However, the network improvement is the most important near term priority for Sprint. Rather than network improvement, Sprint needs network acceleration. Just as he was aggressive in pricing and promotions, Claure has the opportunity to step on the gas to expand the 2014 2.5 GHz target and accelerate the 2015 rollout with at least 250 million POPs covered before the end of next year.
Yet, at the mid-September Goldman Sachs investor conference, Claure revealed that Sprint was taking a different tact. Instead, there wasn't any expansion of the network plan, the plan was to smartly concentrate the 2.5 GHz buildout in a few cities rather than to fully build out to the previously planned 33,000 sites. This appears to be a revisit of the strategy Sprint had circa 2012 when Sprint provided Clearwire priority markets it needed to build out because of "heavy data tonnage" subscriber demand.
The same logic applies: have an excellent and differentiated data experience where all competitors encounter congestion; leverage the planned two-carrier and three-carrier carrier aggregation to bring about the promised 100-150 Mbps peak speeds to beat rivals, market regionally, increase service and network reputation.
Don't get me wrong, this is good logic and in clarifying with Sprint, their CEO's comments addressed looking at sales and marketing priorities rather than perhaps engineering ones. I do disagree with Claure's comments about not needing "to plaster the nation with 2.5, because it's going to take us too long."
Sprint will still need to address the broadest 2.5 GHz national deployment, because competitors are working on a national consistent and high speed experience. Sprint hasn't discussed any details on what the 2015 POP/market target and ultimately how its 2.5 GHz component will look like relative to competitors. It's well known that high-band spectrum like 2.5 GHz provides great capacity but due to poor propagation characteristics building out coverage gets expensiv, and to cover 300 million POPs seems improbable.
To be sure, Sprint's efforts with Competitive Carrier Association (CCA) members can help with some of the Spark buildout and associated roaming in 27 states while adding 38 million POPs to the tally. Beyond this footprint, Sprint needs a wide 2.5 GHz footprint to further the promised differentiated speed experience. What a disappointment for subscribers to drop from a 100+ Mbps experience to one with less than 10 Mbps, dropping to either the thin 5x5 PCS or 800 MHz systems. The future connected car equipped with infotainment systems and mobile hotspots will surely require the bandwidth capability that 2.5 GHz Spark promises.
In the near term, there is the competitive marketing pressure. Verizon has been making inroads in its AWS-based "XLTE" network hitting a reported 400 markets (its 700 LTE covers 500 markets), giving it greater capacity and speed. T-Mobile has been very assertive publicly with its claim of the nation's fastest LTE speeds with a "Wideband" (i.e. at least 15x15 MHz) LTE moniker. Moreover, the T-Mobile has already started to deploy its low-band 700 MHz A Block spectrum. AT&T has been quieter about any network moves but logically something should be in the works to respond to chief rival Verizon. The takeaway is that AT&T, T-Mobile and Verizon Wireless are moving forward, building upon their national network and speed reputations at a faster pace than Sprint, and leveraging marketing mileage from it. Competitors already have a head start and "America's Newest Network" may not be able to blunt their advances.
To be sure, accelerating deployment isn't a trivial matter. It requires more capital, planning and vendor infrastructure and device coordination. Obviously, Sprint parent SoftBank has deep pockets and is able to up its commitment beyond its planned levels. At the beginning of the year, Sprint projected $8 billion in 2014 capital expenditures. With equipment buying power synergy with Softbank, Sprint dropped the projection to less than $7 billion after last quarter's earnings call. Recently, SoftBank has seen its pockets lined by around $4.6 billion, as the 32 percent investment stake in Alibaba has increased in value, in light of Alibaba's record initial public offering. Given Sprint's capital resourcefulness and additional SoftBank injection, Sprint can accelerate and broaden its 2.5 GHz deployment plans. In doing so, it can narrow and close any competitive gap more quickly. SoftBank Chairman Masayoshi Son has said on many occasions that he wants to bring higher mobile broadband speeds to the US and he wants to win.
Claure said he likes being an underdog and winning. Stepping on the gas for the 2.5 GHz network is an essential and urgent component for winning.
William Ho is a leading industry analyst, consultant, and commentator at 556 Ventures. He has over 25 years experience in the fixed, internet and wireless sectors. Follow him on Twitter @billho888.