Sprint blames network for much of its ‘difficult situation’ that’s only getting worse

Responding to comments in connection with the FCC’s review of T-Mobile and Sprint's proposed merger, the Kansas-based operator said it’s “in a very difficult situation that is only getting worse” and proceeded to spell out many of its troubles in a new FCC filing.

No. 1 on the long list of difficulties is Sprint’s lack of low-band spectrum, which is at the root of its network problems, and it’s a problem that can’t be fixed because there’s no low-band spectrum available for it to buy.

“As a result, Sprint is losing customers—which then reduces revenues and cash flow—further limiting its availability to invest in its network and service its debt,” the operator told the FCC in an April 15 filing (PDF). “Simply put, Sprint is not on a sustainable competitive path.”

Indeed, AT&T and Verizon both have legacy cellular networks that have provided a layer of coverage that Sprint and T-Mobile never had much of a chance to match until the 600 MHz incentive auction came along. That auction, in which T-Mobile walked away as the big spender, is giving T-Mobile the spectrum it needs to cover much of the country and which will provide a bedrock for its 5G network.

Sprint sat out of that auction in 2016 in part due to a lack of financial resources and the need to spend cash on more immediate network needs, and in part because at the time it expected to successfully densify its network using monopoles. The monopole strategy would have reduced the need for low-band spectrum, but Sprint later abandoned that plan in favor of a more traditional build.

RELATED: T-Mobile claims merger with Sprint will enable 96% coverage for rural America

While Sprint’s dire situation as a standalone company has framed much of its argument for why it needs to merge with T-Mobile, its latest filing seeks to address head-on some opponents of the merger who have claimed Sprint’s public statements and internal documents undermine the assertion that Sprint faces significant service quality, scale and financial challenges that impact its future competitive relevance.

“We understand that some parties have expressed skepticism about the extent of the challenges faced by Sprint as a standalone company and believe that Sprint’s public statements may be inconsistent with this view,” the operator wrote, citing Dish Network’s April 8 letter (PDF) to the commission pointing out more positive metrics from Sprint’s third fiscal quarter 2018 earnings report.

Sprint also cites various reports from financial analysts with deep dives into the wireless industry and individual companies. For example, an April 6 New Street Research report stated that Sprint is “largely irrelevant to competitive dynamics and pricing in the wireless market, and they are growing more irrelevant every day.” Several other analysts have reached similar conclusions, Sprint noted.

Interestingly, some of the analysts mentioned in the filing recently lowered the odds that the proposed merger will ever get approved. “We’ve stubbornly stuck to our 50/50 odds since the deal was first announced, first as the consensus (inexplicably, at least to us) grew more and more positive, and now as the consensus has grown more and more cautious,” wrote MoffettNathanson analysts in an April 2 note. “This time, we’re with the consensus. It’s time to acknowledge that the odds of the deal are less than a coin toss. We’re officially, and admittedly unscientifically, lowering our odds of approval to one in three (33%) from one in two (50%).”

Oppenheimer analysts also lowered their expectations for the probability of approval to 50/50 from an earlier 80/20 prediction, noting a Bloomberg report that Department of Justice officials were skeptical of the merger and T-Mobile’s continued lobbying efforts.

Opponents to the merger, including the Communications Workers of America (CWA), continue to register their concerns with the FCC. According to another April 15 filing (PDF), CWA met with Commissioner Jessica Rosenworcel last week and presented maps showing where the two companies’ retail stores are located and their duplication.

While T-Mobile argues that the deal will create additional jobs, CWA believes it will result in the loss of 30,000 jobs nationwide. The group also says Sprint is nowhere near meeting the stringent requirements for a failing firm defense and that the carrier’s statements to investors and the Securities and Exchange Commission paint a vastly different picture from the doom and gloom in its FCC merger-related filings.

The organization also noted that Andrew Afflerbach, Ph.D., CEO and CTO of CTC Technology and Energy, was at the meeting and pointed out that the proposed merger would have a marginal impact in rural areas because T-Mobile already holds low-band spectrum best suited for long distances in rural America, but not at high speeds.

At the same time, “Sprint contributes very little rural infrastructure, and its midband spectrum is poorly suited for rural areas because it has shorter range and is easily obstructed by foliage and terrain," the filing stated. “Dr. Afflerbach pointed to the Applicants’ Public Interest Statement which shows that postmerger, the New T-Mobile’s midband coverage would not reach 84.6 million Americans by 2021 and would leave 45.9 million rural Americans unserved in 2024.”

In summary, the message from Sprint continues in the same dire tone it’s been using for some time now. It’s got a lot of 2.5 GHz spectrum, but that spectrum propagates much less than low-band spectrum and it’s economically infeasible to use it to build out a truly nationwide network.

“In short, Sprint’s standalone competitive future is in peril,” the operator said. “It does not have the network assets required to improve its coverage and consistency problems, and the move to 5G will only make these deficiencies more apparent.”