Sprint plans to use 2.5 GHz spectrum to catch up to Verizon, AT&T in LTE

Sprint (NYSE:S) executives think that the company's nationwide deployment of Clearwire's 2.5 GHz spectrum will help it catch up to LTE market leaders Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T), according to a financial analyst research note.

As noted by Barron's, Wells Fargo Securities and investors met earlier this week with Sprint CEO Dan Hesse and CFO Joe Euteneuer, who provided more details and color on the company's Network Vision network modernization efforts, the first phase of which the carrier expects to complete by mid-2014 (as part of that, Sprint expects to cover 200 million POPs with LTE by year-end). The second phase will be the deployment of Clearwire's 2.5 GHz airwaves on a nationwide basis, and Sprint's management expects to reveal more details on that part of the company's plans "at some point in the not-too-distant future," according to note, written by Wells Fargo Securities analysts J. Davis Herbert and Eric Fishel.

Sprint disclosed in July that it plans to deploy Clearwire's 2.5 GHz spectrum using TD-LTE on all 38,000 of its planned Network Vision cell sites in a nationwide rollout. And, due to the weaker propagation characteristics of 2.5 GHz, Sprint will also deploy small cells and other sites beyond the 38,000 Network Vision sites. Previously, Sprint had said it would use Clearwire's spectrum as a "hotspot" LTE network to offload traffic in urban markets.

In markets where Sprint has fully deployed new multimode base stations as part of Network Vision, such as Chicago, Sprint is reporting fewer dropped and blocked calls, improved performance for voice and dramatically faster data speeds.

Yet Sprint remains behind its rivals in LTE coverage for its 1900 MHz FDD-LTE network (Sprint plans to deploy LTE on 800 MHz spectrum starting in the third quarter). Verizon now covers 301 million POPs with LTE. By the end of the year, AT&T plans to cover 270 million POPs with LTE, up from around 225 million now, and T-Mobile US (NYSE:TMUS) plans to cover at least 200 million POPs with LTE, up from 157 million now.

According to the note, Hesse said Verizon has "the best network in the industry and it has paid off enormously." Sprint hopes to catch up over the next several years by offering the "best network in the world." The Sprint executives said tests have shown that once Sprint is through its entire overhaul, its network speeds will be "blazing fast." (Clearwire executives have said in the past that, using carrier aggregation technology, the company could offer theoretical peak speeds of up to 168 Mbps in 2014 on LTE using its spectrum.) Upon completion of Sprint's network overhaul, Sprint expects 90 percent of its backhaul to be driven by Ethernet over fiber and the remaining over microwave.

Looking ahead in terms of capital expenditures, Sprint expects to spend around $8 billion in 2013, $8 billion in 2014, and then $6 billion per year from 2015 to 2017. The company is also still open to network sharing, depending on the economics.

The research note fleshes out some comments Sprint executives made in July. Hesse said on the company's second-quarter earnings conference call in late July that the deployment of a nationwide LTE network on 2.5 GHz will help give Sprint "competitive parity" with its rivals. "And the important thing in terms of what we believe will be a better, a superior network experience will depend upon how quickly we roll out the 2.5 [GHz spectrum], because that will give us extraordinary capacity and some speed and performance advantages in the market," he said.

Analysts think the deployment will help Sprint, but that it will take time to translate into material results for the company. "TBR believes Sprint will keep the TD-LTE network and will use it to improve its existing FDD-LTE network," TBR analyst Eric Costa wrote in a research note last month. "The acquisition of Clearwire greatly improved Sprint's position in the wireless market, yet the operator is unlikely to gain market share from AT&T and Verizon until at least 2015 as Sprint invests to build out its network over the newly acquired spectrum."

Sprint also said it is continuing to notify customers it acquired through the May 2013 deal with U.S. Cellular (NYSE:USM), that it plans to begin shutting down affected portions of the U.S. Cellular network. The shutdown will take effect for the St. Louis metropolitan area, including parts of Missouri and Illinois, on Oct. 31. Sprint plans to reuse the spectrum it acquired in those markets to enhance its network, and Sprint has warned affected customers that their service will be interrupted if they do not move their service to Sprint or another carrier before the change.

For more:
- see this Barron's article
- see this Sprint release

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