Sprint faces questions on Mobilitie's small cell rollout efforts, handset write-off costs

Sprint's (NYSE: S) efforts to deploy up to 70,000 small cells in cities across the country -- largely through vendor Mobilitie -- have stalled somewhat due to troubles obtaining permits for the transmitters. Separately, some Wall Street analysts are raising concerns about the hundreds of millions of dollars the carrier is writing off due in part to customers who sign up for Sprint's handset-leasing offer and then walk away with the devices without paying for them.

First, on Sprint's network, the Wall Street Journal reported that Sprint is working to deploy small cells, primarily for its 2.5 GHz spectrum, on utility poles in "public rights of way," which the publication noted is land that generally holds street lamps, fire hydrants and other city utilities. According to the report, Sprint is working with Mobilitie to deploy the briefcase-sized antennas on the poles.

But those efforts are somewhat on hold as Sprint waits for zoning approval for some of the small cells, which is part of the reason the carrier lowered its capex guidance for the rest of the year to $3 billion, far below the expected $4.5 billion.

According to the WSJ, Mobilitie has 1,000 permits and will begin a wide-scale rollout when it has more. Mobilitie's CEO told the publication that building and operating the small cells cost $190,000 over 10 years, far less than the average $732,000 it costs to operate a macro tower.

The WSJ also reported that Mobilitie has filed permit applications under a wide variety of corporate names in cities across the country, leading to confusion. The company has said it will file for the applications under the name Mobilitie in the future.

Separately, the analysts at MoffettNathanson combed through Sprint's recent quarterly 10-K filing with the U.S. Securities and Exchange Commission, and pointed to several write-downs the company is taking on its networks and its handsets.

Specifically, the analysts noted Sprint recorded a $166 million loss that the company said is related to "cell site construction and other network costs that are no longer recoverable as a result of changes in the Company's network plans."

"Although $166M (out of a ~$3B current capex plan) once again represents a relatively modest amount, and indeed an amount that may have been spent years ago, one wonders if there is the potential for additional capex-related write-offs should Sprint continue to slash prior network commitments," the analysts wrote of Sprint's charge.

But more concerning, the analysts wrote, is the $256 million write-off Sprint recorded due to cancellations of its handset leases. "The number gives one pause. At a $650 average value per leased handset, that is the equivalent of 393K customers simply walking off with a Sprint handset at lease inception, without ever making a single payment," the MoffettNathanson analysts noted, although they added that the figure also includes other elements including customer-initiated cancellations and accelerated upgrades.

"Interestingly, Sprint's 10-K discloses that Sprint is now borrowing against future lease receivables, having sold $1.2B in not-yet leased device receivables for cash of $600M in the calendar first quarter. This suggests that Sprint may be running out of runway for additional handset securitizations," the analysts wrote. "Perhaps this is why T-Mobile, after a brief dalliance, has decided to de-emphasize leasing."

For more:
- see this WSJ article

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