Over the past year top executives from Sprint (NYSE: S) parent SoftBank floated the possibility of selling Sprint to both Comcast (NASDAQ: CMCSA) and European telecom firm Altice, according to a Wall Street Journal report, which cited unnamed sources. The efforts never went anywhere and SoftBank CEO and Sprint Chairman Masayoshi Son has firmly backed Sprint, but turning around the carrier has been anything but smooth for Son and SoftBank.
In an in-depth report on the efforts that both SoftBank and Sprint have undertaken to transform Sprint over the past two years since SoftBank took control of Sprint for $21.6 billion, a portrait emerges of executives who underestimated the depth and complexity of the challenges facing Sprint. However, the report also shows that Son is now deeply committed to Sprint and intensely involved in improving the company's network.
Sprint declined to comment on the mooted sales talks, and Son conceded to the Journal in an interview that Sprint doesn't look attractive to potential buyers right now. "If nobody wants to buy it and we still have the customers, we still have employees, so I have to take care," he said.
Son said last week on Sprint's earnings conference call that over the last few months he has been "totally refocused" on helping Sprint CEO Marcelo Claure and the management team execute on "the historical turnaround of the company."
"I believe Sprint is going to be one of the very, very good companies of which I will be very proud," Son said last week.
Son told the Journal he has been working for months with his 100 top network engineers seven nights a week from 10 p.m. to 2 a.m. to develop turnaround strategies for Sprint. However, Son also thinks he should "go back to where I was focused" and work on the Internet side of the SoftBank Group. That sector, epitomized by SoftBank's $70 billion windfall in Chinese e-commerce company Alibaba after a $20 million investment, "continues to explode, and I should get back to where my passion still has a lot."
The main focus right now at Sprint is on improving its network in a cost-efficient way and helping it grow postpaid subscribers to catch up to T-Mobile US (NYSE:TMUS), which surpassed Sprint as the No. 3 wireless carrier in the second quarter after Sprint had been in that place for years.
Sprint hasn't had an annual profit since 2006 and has racked up about $50 billion in losses since then following the failed merger with Nextel. Sprint reported a net loss of $20 million in its fiscal first quarter last week and revenue fell 8.7 percent to $8.03 billion.
Although Sprint executives said last week that 2015 will be the peak of its burning through cash and that the company will institute more cost cuts in 2016, analysts are worried about Sprint's financial position. Sprint burned through $2.2 billion in the latest quarter, up from $496 million a year ago.
After Son became chairman in July 2013, he often denounced ideas as "stupid," the report said, and former Sprint CEO Dan Hesse asked Son to treat Sprint employees with more respect and soften his tone, which he did. "That's my style that I say what I feel," Son says.
If Son was trying to shake up the culture at Sprint and make it more fast-paced, unnamed sources inside Sprint said he seemed to underestimate how difficult it is to quickly install network gear in the U.S. because of local zoning regulations. Sprint's Network Vision network modernization project dragged on through 2013 and into 2014, which caused service disruptions and led to significant customer losses.
Son pushed hard last year to merge Sprint with T-Mobile to increase the carrier's scale and better compete with Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T), but regulators at the FCC and Department of Justice signaled they would balk at such consolidation.
"I was thinking to myself: 'I made one of the biggest mistakes in my life,' which was the misjudgment of the U.S. regulatory environment," Son said in the interview. After the deal collapsed last summer, Son decided to "move on to the rest of the world and other businesses," he said.
"I'm a busy guy," he said. "Why should I even concentrate on the U.S. market when the situation does not look good?" Son even considered writing off Sprint as a total loss, the report said.
However, after Son elevated Claure to replace Hesse in August 2014, Claure shook things up with new pricing plans, personnel and internal changes at Sprint. Claure moved executives from a wood-paneled executive suite to cubicles, the report said, pushed employees to come in early and stay late, and even on some Sundays cooked breakfast at his home near Sprint's headquarters to keep executives working on the weekend and build camaraderie.
Sprint is showing some signs of a turnaround. Last week the carrier said it added postpaid phone customers in May and June and recorded its best-ever Sprint platform postpaid churn. "We feel we are in a good place, and we feel we're making progress," Claure in an interview with the WSJ.
Sprint plans to add thousands of macro cell sites and tens of thousands of small cells to densify its network, and it plans to make sure "nearly all" of its existing macro cell sites will be upgraded to support 800 MHz, 1900 MHz and 2.5 GHz for LTE. Sprint needs to make those improvements, but it will cost time and money.
Fixing Sprint once and for all would "cost us tremendous money, and Sprint does not have that much money," Son said. Also, SoftBank's covenants with Japanese banks prevent sinking more cash into Sprint.
Over the course of four months in Tokyo, Son pushed his engineers to come up ways to help Sprint improve its network cheaply, asking them to often work 16-hour days with round-the-clock meals brought in.
Claure said last week that Sprint will use both existing vendors and new vendors for the densification as well as "various options" for backhaul, though he did not go into any details. Analysts have also speculated that Sprint will likely use in-band wireless backhaul solutions using the lower 2.5 GHz spectrum band that would not require line of sight.
Claure said Sprint will fully embrace the knowledge and expertise of its parent company, SoftBank, which, like Sprint, has deployed a 2.5 GHz TD-LTE network in Japan. The companies are also working to set up a leasing company to help Sprint finance the purchase of network equipment.
Son won't say exactly how Sprint will pull off its network densification while maintaining roughly $5 billion per year in capital expenditures for the next three fiscal years. "It's like a fight, a boxing match," he said. "As a fighter, you are not going to explain how did you do the special training and how you intend to hit the left punch from what angle, at what timing."
Yet SoftBank also has other priorities and plans to invest $10 billion in India alone. SoftBank President Nikesh Arora has privately expressed his frustration with SoftBank's ownership of Sprint and has recommended trying to sell it, the report said.
"Many people said that," Son responded. "It was not just one person." For now, SoftBank and Son are all-in on Sprint.
For more:
- see this WSJ article (sub. req.)
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