Neither Sprint Nextel Corp. (NYSE: S) nor MetroPCS Communications (NYSE: PCS) will talk about a rumored deal that allegedly died in the boardroom. But an industry analyst said that such a deal would have done little to shake up the wireless market.
Right now, Sprint needs something to boost its game. Its shares continue to limp along at around $2.50, near its 52-week low of $2.10. The company reported a fourth-quarter net loss of $1.3 billion on revenue of $8.7 billion, a year after posting a net loss of $929 million on revenue of $8.3 billion. In a regulatory filing, Sprint said it has reduced its net loss of postpaid subscribers, but if that trend does not continue, the company’s finances and liquidity could suffer material harm.
A deal with MetroPCS could have added 9.3 million subscribers to Sprint’s 55 million customers. More importantly, it would have opened up more spectrum to Sprint. In spite of that potential gain, Robert Rosenberg, president of Insight Research Corp., told us that other options may make more sense for Sprint’s future growth.
“I thought about them incurring debt and not changing their position substantially” with MetroPCS, Rosenberg said. “The real thing that would turn this into a three-way horse race would be Sprint linking up with T-Mobile.” That could end the possibility of a duopoly between Verizon Wireless, part of Verizon Communications Inc. (NYSE: VZ), and AT&T Inc. (NYSE: T).
Acquisition of spectrum, the signal used by wireless devices, is crucial for growth in the industry as data use increases, he said. “You can never have enough spectrum. It’s a constrained commodity.” One way for wireless carriers to address this issue is by splitting cell sites -- a method that boosts coverage for an area by installing more towers. That lets wireless providers reuse spectrum in the area, but it requires significant investment. “You want to postpone that as much as you can. Every time you do that, you have to put up a new tower. It’s a lot of expense.”
Others have tried to consolidate the wireless market (and gain spectrum) by gobbling up smaller rivals, but the tactic has its risks. AT&T paid a $4 billion breakup fee after regulators shot down its bid to acquire T-Mobile USA .
“AT&T took a big licking in terms of the failure to execute that deal,” Rosenberg said. Given the reaction to that offer, he doubts T-Mobile would seek a deal with a player such as Verizon Wireless. That leaves T-Mobile the option of continuing on its own or talking to someone smaller. “Is there synergy between” T-Mobile and Sprint? “I've got to believe there is.”
I am not sure how much more aggressive Sprint is willing to be in order to grow.
It was disappointing that the rumors were about a potential MetroPCS deal and not T-Mobile. Sprint finally got the iPhone (I'm still sorting out how much THAT cost them to do) and dodged a bullet when the AT&T and T-Mobile deal died. That would have put Sprint very, very far behind the Big Two in terms of subscribers.
There is some chatter about the Sprint board defying Dan Hesse on MetroPCS. I think it depends on what Sprint thinks it can do to grow. Neither of the Big Two could or seems interested in acquiring Sprint (in one piece). So unless there is an outsider from the broader telecom market eager to get into wireless, I don't see anyone rushing to buy Sprint... at least as a whole entity.
Which brings us back to Sprint trying to acquire someone smaller. Sprint got a bit of a bump when it bought Virgin Mobile USA but not nearly enough to make it a serious contender with Verizon Wireless and AT&T. For the moment, T-Mobile could be a little gun-shy when it comes to M&As.
It would be woefully ironic if T-Mobile went into acquisition mode and got its hands on MetroPCS. Toss in a couple of regional wireless deals and then T-Mobile moves within striking distance of Sprint for the No. 3 spot.
Sprint clearly needs to do something. The big miss with Clearwire and then the decision to go LTE has got to hurt- along with the loss of subscribers. the iPhone is working for them, but the upfront costs are a killer. It may be a smaller, well financed rival taking Sprint down rather then the other way around.
What a lot of money to be loosing! It's clear that it is becoming harder and harder for sprint to get back in shape. If sprint wants to acquire companies what are the ones that could be considered good buys? Or if they wish to sell off who might be willing to purchase?
Sprint has really been a hit or miss with deals over the past few years. I know there deal with the major cable companies fell apart last year as well. I know between 2010 and 2011 they were also lossing subs at an alarming rate.
Sprint is also a CDMA carrier, a technology that seems to be lossing favor.
So, the company is bloated with debt and losing tons of money. Let's not overanalyze things, this is not a pretty picture. Sprint's best hope is to sell itself for the spectrum assets.
How much do you think this will help Sprint's performance?
Sprint just announced the SprinTV app, a free application that lets users watch select live and on-demand programming from a variety of partners, including ABC, CBS, NBC, ESPN, The Disney Channel, MTV and Comedy Central. Should be convenient for users with unlimited data plans.
Wait, @Noreen...you forgot to mention what could make all the difference. Sprint is also offering premium viewing packages on this app. So for $4.99 to $9.99, you'll be able to keep up with all your must-see TV, like "Keeping Up With The Kardashians" and "SpongeBob Squarepants."
@Tenacious, I agree there network is pretty bad, When I lived in Rhode Island I had Sprint service because it was deeply discounted through my employer, but just to get service at my house I had to get one of there femto cells. Sprint provided the device for free, but given the population density where I lived there was no real reason for me to not have coverage othewise.
Sprint cut a $20B multiple-year iphone deal with Apple at the end of 2011. The deal alone could be the last straw to crash sprint. Sprint celebrated the deal as a big win. I think it is a celebration of fools: The deal carried huge risk for sprint investor. The real winner is Apple. Let's look at the deal in detail:
1. Sprint is commited to buy $20B or 30M iphone. For Sprint to digest the inventory, it means more than half of the current Sprint subscriber must buy a iPhone, but US smartphone penetration will be only about 60% at the end of 2015, will it mean that every smartphone user at Sprint will have an iPhone?
2. It may appear as low probability, but what if iPhone 5 is a flop? Sprint will end up with a huge expansive inventory, and only a deep discount will clean up these inventory. Add this to the top of current loss, Sprint will go belly up for sure.
3. Sprint claimed iphone 5 deal is exclusive, sounds great. But if you dig in, you will find that Sprint will have the exclusive right for WiMax version of iphone 5. AT&T and Verizon can sell the LTE version of iPhone 5. Unfornately the whole world is consolidate to LTE, it basically makes the Sprint's exclusive deal meanless.
Good summary. Sprint bet the company on that iPhone deal. Difficult to see how they can sell enough iPhones to make it worthwhile. (Buying MetroPCS might have helped in this mission.) And if they do manage to deploy all the iPhones, the resulting data traffic will put a strain on their network.
The SprinTV app that Noreen mentioned, also drives more data traffic headaches.
They do need to create reasons for people to consider Sprint, so iPhones and TV apps are good ideas. Just not clear that it's enough to stop the bleeding.
Sprint could gain at least some subscribers from AT&Ts new move to crackdown on unlimited data. AT&T just changed its policy on dealing with legacy "unlimited" data users consuming what the company considers to be "too much" of the unlimited data that they signed up for. Previously the company would throttle the data connections for any users that were in the top 5 percent of their local market's data users.
Now it's rolled out a new policy that is more transparent. It states that unlimited users will receive a text message that warns them when they approach the 3GB soft limit of data use. Breaching that limit will result in any additional data for the remainder of the current billing cycle being slowed down, with normal speeds returning at the beginning of the next billing cycle. If an unlimited data customer goes past the 3GB limit in a later month, no warning will be issued via text message, though users will always have the ability to dial *data# (*3282#) to see where they stand.
I still wonder how a company can legally limit "unlimited data. But that point aside, some customers may be angry enough to switch -- if Sprint can stick around until enough of them get out of their existing contracts.
The top priority of all carriers is to acquire new subscribers. It is clearly shown on their financial statement. They all talked about how many new customers they attracted each quarter. Nobody bother to provide data about how satisfied the existing customers are. Once they locked you down with two years contract, you are nobody - just a cow to be milked.
Limiting -"unlimited" data is just one more example of the doublespeak and doublethink needed to wrap your head around modern corporate strategies and promotions. We should start a national clarity week.
It's hard to expect people to protect themselves by reading the fine print if corporations do things like change the meaning of basic words. I mean, shouldn't unlimited mean without limits?
I'm actually sympathetic to the carriers on data. Unfortunately the way the smartphone market started out, customers were conditioned to be allowed to scarf down whatever they want on their phone. However bandwidth has a cost, spectrum is growing scarce, and all of that equipment needs to be bought in order to supply the onslaught of users.
As a fairly light users of smartphone data, I don't really want to subsidize all of those people who are uploading video clips and reloading facebook all day long. To me it makes sense to have data limits as it will essetnailly ratchet back superfluos uses of the data (youTube Kitten videos).
You're right Scott. There are real costs associated with handling the exponential growth in data. And when "unlimited" plans were first sold, nobody foresaw the levels of data usage that are now becoming common.
Still, the major carriers could have planned a more graceful path to wean consumers from these plans. Years ago, when they stopped taking new "unlimited" accounts; it would have been honest to admit that "unlimited" would only exist for a limited time. They could have communicated an end-date that was far enough in the future so people would understand.
And now that we've reached that date, they could have put the cap at a level that will only effect a small number of the most intense accounts.
My sympathy doesn't mean I agree with the way the carriers have managed the hands they were dealt.
I'd ask a couple questions - how much data do you consume in an average month? And How much extra do you want to pay to subsidize your neighbor who takes 30GB every month?
My answers, which a lot of smartphine customers share are - about 2G per month, and zero, nada, zip, nothing.
Completely agree that "unlimited" plans must be renamed if they are now limited.
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