Sprint CFO: We will lease some spectrum assets via 'spectrum leaseco' within next several months

Sprint's (NYSE: S) CFO said the carrier is working on a financial arrangement where it will sell the rights to some of its spectrum licenses to an unnamed entity that will then lease those rights back to Sprint. Sprint's Tarek Robbiati said the company expects to finalize the money-raising effort within the coming months.

"There's a lot of work happening on the spectrum leaseco," Robbiati said in an appearance at the 44th Annual J.P. Morgan Conference. "I did not want to do that early on, for a very simple reason: Spectrum is at the heart of value for Sprint."

However, Robbiati said Sprint is moving forward with its spectrum leasing plans, which likely will focus on its trove of 2.5 GHz spectrum licenses. "Right now we're in the middle of driving work on spectrum leaseco," he said. "This is expected to happen within the next several months. I don't want to give a specific date because I do want to drive the lowest cost of capital in the cost structure."

Added Robbiati: "We do want to retain ownership of the spectrum," he said. "We want to do it in a way that allows us to raise capital without relinquishing the rights on the spectrum."

Sprint has already established lease-back arrangements for some of its device and network equipment assets. In November it sold $1.3 billion in leased device assets to Mobile Leasing Solutions (MLS), which was established by SoftBank and other investors. Sprint received $1.2 billion in total financing in return. And last month Sprint raised roughly $2.2 billion by selling some of its cell-tower equipment to a new entity.

It's unclear how much spectrum Sprint might lease through its planned arrangement, or how much money it might raise. Sprint's spectrum assets are estimated to be worth more than $115 billion.

Sprint is employing the lease-back strategy to pay off billions in loans that will come due later this year and in 2017.

In his comments at the J.P. Morgan event, Robbiati also addressed Sprint's reduction in its capital expenditures. Sprint raised eyebrows earlier this month when it lowered its capex guidance for the rest of the year to roughly $3 billion, far below analysts' estimates in the range of $4.5 billion.

"It is very well planned," Robbiati said of Sprint's network spending plans, explaining that Sprint has already made progress improving its network through deploying its 2.5 GHz spectrum and employing software techniques like two-carrier aggregation. "You always have to continuously optimize the network. … We look at very different ways of optimizing the network."

"We are at a point where the majority of our traffic is carried on our 2.5 spectrum," he said. "In two years what has happened is that the deployment of 2.5, the deployment of carrier aggregation software, allowed us to rebalance our traffic dramatically between all the LTE bands, including 1900 and 2500 [MHz]. And so that changes the customer experience because when the customer is able to use two-carrier aggregation on 2.5, then the customer experience in terms of speed is fundamentally different."

And Robbiati said Sprint's network plans for this year involve building "a 5G-ready network for the future."

"When you look at 5G networks of the future, they're not going to look the same as what you see today. It's a very, very different way to roll out the network," he said. "To build a 5G network, it requires the deployment of several thousand cell sites, and you cannot do that economically with large structures."

Robbiati explained that deploying small cell sites costs 60 to 70 percent less than deploying larger macro cell sites. "You don't have to spend a lot of money in a 5G world to create a 5G network, especially if you have a huge amount of spectrum," he said. "You've got to deploy them differently with cheaper cost structures to maintain … doing it the old way is not going to work."

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