Sprint's lowered capex guidance - from $4.5B to $3B - concerns investors, despite $11B in liquidity

Sprint continues to improve its liquidity as it defers -- or is forced to defer -- network spending. But whether that's a winning combination is far from clear.

The struggling operator has secured $11 billion in "total committed liquidity," Wells Fargo Securities analysts noted in a research note following the release of Sprint's first-quarter earnings report. That sum stems primarily from parent company SoftBank's creation of financing vehicles involving Sprint's network assets and leased handsets. And Sprint last week announced a $2 billion bridge financing arrangement with Mizuho Bank.

"While we were (happily) surprised with the positive handset adds (remember we were worried and negative) -- the key to the story is the liquidity position, in our view, and there Sprint has taken some very positive steps," according to Wells Fargo. "We believe confidence in this liquidity position will grow with Sprint's greater focus on profitability and cost containment."

But part of that "cost containment" has come recently in the form of decreased capex expenditures. Sprint's capex for the quarter was $1.29 billion, exceeding some analysts' estimates, but the carrier raised eyebrows 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.

That's especially noteworthy because Sprint had previously issued a capex guidance of $15 billion over three years, "implying $5 billion of spend per year," New Street Research analysts noted. Sprint didn't provide an updated guidance for the three-year period, leaving analysts to wonder how much the carrier plans to invest in its network over the next few years.

"We do not expect Sprint to raise outer year capex to offset the near-term shortfall; given Sprint's precarious financial position, we expect Sprint to remain at a subdued level of spending for the foreseeable future," New Street wrote.

When pressed for details on Sprint's revised capex guidance for the rest of the year, CEO Marcelo Claure pointed to a densification strategy that leverages "tens of thousands" of small cells, which often require the approval of local governments. That strategy is a departure from more traditional plans that outsource deployments to tower companies, which can be costly and come with long-term contracts.

"What we're doing now, we're doing things a bit different," Claure said. "We have a very clear densification strategy and what we're seeing leveraging big data is we're actually figuring out where is the exact point in which we got to put additional structures in order for us to better serve our customers.

"And then we're going and seeing what is the least expensive way to actually put the structure, and it's a combination of going to tower companies, in many cases, it's a combination of putting our own monopoles, of using small cells, of using femtocells. And a lot of these are depending on getting approvals from the different municipalities or different cities."

But Sprint's cash-strapped position may play a part in its decreased capex guidance as well, of course. MoffettNathanson, in fact, observed that "Sprint is clearly in survival mode and may remain in its spending bunker."

And analysts fear lower-than-expected capex may lead to the kind of network woes that plagued the carrier several years ago -- problems Sprint has worked hard to address.

"We are also troubled by what appears to be a delay in network densification due to municipality approvals for the network build," Jefferies analysts wrote. "In our view, a delay until fiscal year 2017 on densification could make sustainable subscriber gains problematic."

For more:
- see this Sprint earnings call transcript

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