More than 40 percent of Sprint's (NYSE: S) overall traffic is being carried on its 2.5 GHz airwaves, Wells Fargo Securities reported over the weekend, and the carrier hasn't suffered any "meaningful congestion" recently.
But whether Sprint's treasure trove of spectrum will translate to a sound business is still unclear.
Sprint has come under fire in recent months for cutting back its infrastructure spending as it works to densify its network, primarily by deploying small cells from the vendor Mobilitie. The operator recently lowered its capex guidance for the rest of the year to $3 billion, far below the expected $4.5 billion, and the small-cell rollout has reportedly stalled due to troubles obtaining permits from local authorities.
Deployments of small cells have even been rumored to be on hold for all carriers in roughly a half-dozen U.S. markets while vendors, carriers and local authorities struggle to develop policies and practices for installing and maintaining the briefcase-size antennas on utility poles and other local rights-of-way.
But Wells Fargo, which has typically been bullish on the nation's fourth-largest carrier, visited Sprint's headquarters Friday and reported that while there have been hiccups in the deployments of transmitters, the rollout is actually ahead of schedule.
"Both (CEO Marcelo) Claure and the network team indicated, that, while in some markets it has to be more 'patient' overall, the permitting and approval stage for its small cell deployment has been ahead of expectations," Jennifer M. Fritzsche wrote. "The most interesting take-away was the fact that today Sprint carries more "tonnage per subscriber" of data than any other carrier in the US - yet it is using only less than 25% of its 2.5GHz spectrum holdings. Think about that - using less than 1/4 of its 2.5GHz spectrum, more tonnage/ sub than any carrier and no meaningful congestion."
Fritzsche said that prior to April the bulk of Sprint's traffic was carried over its PCS spectrum. But the operator is employing TDD (time division duplex) rather than FDD (frequency division duplex), which enables it to adjust uplink and downlink as necessary depending on usage.
"The best analogy to use to describe this point is TDD is a four-lane highway. If TDD and FDD spectrum were both four-lane highways, the FDD one would allow you to reverse 1 of the lanes to accommodate rush hour and keep traffic moving at a higher rate of speed. We note Sprint is the only U.S. carrier which has TDD spectrum. This becomes all the more important in a 5G world. In fact a case could be made that Sprint is the only one of the four national carriers that has small-cell spectrum."
Rather than network concerns, Claure said Sprint's biggest challenges are in sales and distribution. The carrier's retail business "is in a decentralizing mode," Fritzsche wrote, separating the country into four regions managed by 18 regional presidents.
"There seems to be a recognition that many of their stores are sub-par (too old, wrong location, etc.)," she reported. "(CFO Tarek) Robbiati spoke of 1,000 new stores to be added (no specific time frame mentioned). These do not represent an incremental number but rather would include some expected stores to be closed."
Outlook from some other analysts isn't nearly as rosy as Wells Fargo's, however. While the operator has made a series of financial moves to improve its financial position, its prospects for survival remain uncertain. "In short, there are no magic bullets," MoffettNathanson analysts wrote last week in a research note predicting the carrier will continue to lose roughly $3 billion a year in "core" cash from its services business. "If one eliminates handsets from the model entirely… one is left with this: Sprint's ex-handset margins are not high enough to support both interest and capex."
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