Sprint’s shrinking spending drags U.S. wireless capex down 10% in Q2

Sprint decreased its network investments in the second quarter as it works to regain its financial footing, but its competitors continue to pour money into their infrastructure.

The four major U.S. carriers spent a combined $7.3 billion in capex in the second quarter of 2016, according to Jennifer Fritzsche of Wells Fargo Securities, down 10 percent from the $8.1 billion they spent during the same period a year ago. But that drop-off was due primarily to Sprint’s $376 million in capex spending, which marked a dramatic decrease from the $1.6 billion it spent during the second quarter of 2015.

“Excluding Sprint’s wireless capex, total spend was $6.9 billion in Q2 2016, and up 7 percent year over year from $6.5 billion,” Fritzsche wrote in a research note. “AT&T continues to invest in its wireless network, deploying fallow spectrum and densifying via the use of small cells, though we would note its capex budget has other demands on it as well (i.e.: increased fiber build, DTV capex, Mexico network build, etc.). T-Mobile continues to build out its 700 MHz footprint, and front-loaded its first half 2016 capex investment by $500 million in order to expedite the build.”

Indeed, T-Mobile CTO Neville Ray said earlier this month that the carrier will “close the gap” with Verizon’s LTE network footprint by the end of the year, covering the same number of people that Verizon does with LTE. T-Mobile’s LTE network currently covers 311 million, just a few million shy of Verizon’s network claims.

Meanwhile, analysts continue to question whether Sprint is investing enough in its network to keep pace with the competition. Sprint lowered its capex guidance in May for the rest of the year to $3 billion, down significantly from analysts’ estimates in the range of $4.5 billion, and its second-quarter earnings report did nothing to ease analysts’ concerns.

"Consolidated capex, again including phones, was 22 percent below StreetAccount consensus,” MoffettNathanson wrote last month following Sprint’s second-quarter results. “Results of network tests suggest that Sprint's network is getting better, and Sprint's deep 2.5 GHz spectrum holdings give it undeniable advantages in spectrum aggregation at lower cost. But this much lower?"

Analysts expect carriers to ramp up spending on their networks once the upcoming incentive auction of 600 MHz spectrum is complete, and as they begin to commercially deploy 5G technologies over the next few years. The next few quarters are likely to determine whether Sprint can continue to enhance its network sufficiently as it improves the bottom line.

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