Sprint's Claure: It doesn't matter if T-Mobile passes us as No. 3 carrier - we're focused on improving

T-Mobile US (NYSE:TMUS) CEO John Legere has made one of his missions in 2015 to have his company pass Sprint (NYSE: S) in terms of total subscribers, to became the nation's No. 3 carrier. Sprint CEO Marcelo Claure indicated that if that happens, it won't be a big deal.

sprint ceo marcelo claure


"T-Mobile has great momentum," Claure told CNET. "I'm focused on fixing the fundamentals whether we're No. 3 or No. 4. Customers don't care about rank. I'm not worried about whether we're No. 3 or No. 4."

As of the end of the fourth quarter of 2014 Sprint had 55.929 million total customers, and T-Mobile reported 55.018 million, 911,000 behind Sprint. T-Mobile has also been adding customers at a prodigious clip, tallying 2.1 million new customers in the fourth quarter, including 1.3 million branded postpaid net subscriber additions. In contrast, Sprint added a net of 842,000 wireless customers in the fourth quarter, but lost a net of 19,000 postpaid customers.

​In an interview with FierceWireless, Sprint CFO Joe Euteneuer echoed Claure's comments. He said the company is "really focused on our business plan" and on attracting high-quality customers.

"We want to grow," he said. "But we want to do it with the right mix" and not add low-quality or low-credit subscribers just for the sake of boosting subscriber numbers. "That's a short-term, myopic view," he said.

Yet Sprint faces challenges, both financially and in terms of subscriber growth. The company's free cash flow was a negative $1.8 billion in its most recent quarter, although that was about $1 billion smaller than its free cash flow deficit in the year-ago quarter. The carrier predicted its EBITDA would grow between 5 percent and 7 percent in 2015 after previously thinking such earnings would be flat.

However, analysts are worried about how much cash Sprint is burning through. "The questions about burn rate and when Sprint will run out of cash are becoming inescapable" wrote MoffettNathanson analyst Craig Moffett in a research note to clients. Moffett also wrote that "relying on prepaid and wholesale to save the day is a perilous game."

Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote in a research note that Sprint's estimate of 2015 EBITDA of $6.4 billion to $6.5 billion was higher than its previous estimate of $6.2 billion. However, they also think Sprint will burn through $5.7 billion in cash in 2015 and remain "extremely cautious" about Sprint.

"Sprint's top priority remains reversing last year's [2 million+] postpaid handset subscriber losses," they wrote. "While new plans and promotions have helped improve gross add trends, lowering churn of 2.3% will take time. Even as major involuntary churn issues dissipate into the second half of the year, network perception issues remain, and will only begin to improve as the 800 MHz LTE deployment reaches completion towards the end of the year."

Claure said Thursday that Sprint will implement carrier aggregation across all its spectrum bands, meaning Sprint eventually will be able to deploy 1900 MHz FDD-LTE for uplink and 2.5 GHz TD-LTE for downlink, and ultimately improve the coverage of 2.5 GHz LTE to levels that its 1900 MHz spectrum currently achieves.

The Jefferies analysts wrote that they were skeptical about Sprint's network-improvement plans. "While the technology is promising, we highlight that the realistic deployment and handset availability is at least 1-2 years out. Furthermore, solid execution on the 2.5 GHz deployment has been illusive," they added.

Claure said SoftBank's $21.8 billion purchase of Sprint in 2013 has yet to pay off but that Sprint is improving and gaining momentum "It's fair to say that the investment has performed at a less attractive rate of return than they would have expected," Claure told the Wall Street Journal.

Claure took the helm in August and has been focused on adding high-credit customers, in part by enticing Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T) customers to switch.  "This is a turnaround and it takes time," he said. "The trajectory has reversed."

Meanwhile, Claure got into yet another verbal spat with Legere. "I think Legere is in for a rude awakening when new scores come out about network performance," Claure told CNET. "I let actions speak." He said that network testing firm RootMetrics will come out with a report soon on network performance for the second half of 2014, which will show strong improvement for Sprint. In markets where Sprint has improved its LTE network the carrier will advertise those enhancements, he said.

Legere hit back and said the RootMetrics data was old and that T-Mobile's network is the fastest in the country, based on data from Speedtest.net. Legere also said data collected by firms like RootMetrics don't keep up with T-Mobile's pace of network improvements. "If I were them, I'd be clinging to months-old data too," Legere said in an email. "Everyone knows that Sprint has the worst network [and] customer satisfaction in the industry--by a mile." RootMetrics declined to comment, according to CNET.

According to a new report from J.D. Power, AT&T had the best overall customer care, followed closely by T-Mobile. Sprint came in last in that report. The study was conducted with field surveys from July 2014 through December 2014.

For more:
- see this CNET article
- see this WSJ article (sub. req.)

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