Sprint Nextel Corporation (NYSE: S) is a telecommunications company based in Overland Park, Kansas. The company owns and operates Sprint, the third largest wireless telecommunications network in the United States, with 56.3 million customers,[1] behind Verizon Wireless and AT&T Mobility.
Sprint is a global Internet carrier and makes up a portion of the Internet backbone. In the United States, the company is the third largest long distance provider and also owns a majority of Clearwire, which operates the largest wireless broadband network.
The company was renamed in 2005 with the purchase of Nextel Communications by Sprint Corporation. The company continues to operate using two separate wireless network technologies, CDMA and iDEN (for Nextel and some Boost Mobile subscribers). In 2006, the company spun off its local landline telephone business, naming it Embarq (which was subsequently acquired by CenturyTel). In 2009, Sprint reached an agreement to outsource management of its wireless networks to Ericsson.
Sprint Nextel launched its first WiMAX wireless card on December 21, 2008 (The Franklin Wireless u300 broadband card), and the first WiMAX phone available in the United States (The HTC Evo 4G) on June 4, 2010, utilizing its WiMAX technology from Clearwire Corp. A recent Consumer Reports survey tied Sprint with perennial front-runner Verizon Wireless in terms of customer satisfaction, a big improvement over previous years.[4]


Sprint Nextel (NYSE: S) is a telecommunications company, offering both wireless and wireline products and services under the Sprint umbrella brand, which consists of Sprint, Nextel, Boost Mobile, Virgin Mobile and Assurance Wireless sub-brands. The company was formed in 2005 with Sprint's $35 billion purchase of Nextel Communications, an acquisition considered by many to be one of the most value destructive deals of all time, with more than $30 billion in writedowns since the merger was finalized[1]. As of the end of 3Q10, Sprint is the third-largest wireless carrier in the United States by number of subscribers, servicing 48.8 million, as well as the only U.S. carrier with a 4G network, offering the Android-based HTC Evo 4G in over 36 metro areas as of July 2010 phone[2][3][4].

As of late, Sprint Nextel has sought strategic partnerships and acquisitions to compete with AT&T and Verizon Wireless. On July 9, 2009, Sprint announced a seven-year agreement with Ericsson that places Ericsson in charge of managing the day-to-day network services and Sprint in charge of customer service and cost reduction initiatives, paying Ericsson between $4.5 and $5 billion over the life of the contract and retaining complete ownership and decision-making capabilities of its network[5]. In November 2009, Sprint announced the completion of its $483 million purchase of prepaid wireless reseller Virgin Mobile USA, granting the company access to roughly 5.2 million additional subscribers[6]. A month later, Sprint also announced it had finalized its acquisition of IPCS for $831 million, adding another 700,000 wireless customers to Sprint's subscriber base[7].

Contents
1 Business Overview
1.1 Business and Financial Metrics
1.2 Business Segments
1.2.1 Wireless (83% of operating revenue in FY2009[18])
1.2.2 Wireline (17% of operating revenue in FY2009[18])
1.3 Network Infrastructure
1.3.1 CDMA Network
1.3.2 iDEN Network
2 Trends and Forces
2.1 Slow Growth in a Maturing Market
2.2 Subprime Credit Customers are Vulnerable to Economic Downturns
2.3 4G Network
2.4 A Highly Regulated Environment
3 Competition
4 References
In the past couple of years, Sprint's most pressing problem has been a high churn rate for post-paid subscribers. Although fluctuations in Sprint's churn rates can in part be attributed to seasonality, their secular rise has been fueled mainly by migration to other wireless carriers. This has stemmed from Sprint's difficulties integrating its iDEN and CDMA networks, which disrupted Sprint's once stellar customer service, as well as unlimited calling plans by competitors, which have rendered the iDEN network's minute-saving "push-to-talk" capability obsolete. In the first half of FY2009, Sprint lost roughly 1.15M iDEN post-paid customers in 1H09[8].

To counteract the steady loss of subscribers, Sprint made a large bet on WiMAX, a 4G technology, by spearheading $14.5 billion joint venture with Clearwire, with investment from Comcast, Time Warner Cable, Bright House, Intel, Trilogy Equity Partners, and Google to build a WiMAX network covering 140 million people by 2010[9][9]. 4G networks like WiMax would decrease the price per megabyte of mobile data, a boon to wireless carriers given the secular uptick in demand for data. The investment in WiMAX is a departure from major competitors AT&T and Verizon, who are making their reach into 4G through a technology called "Long Term Evolution"[10]. In July 2010, CEO Dan Hesse stated that because of access to ample 4G spectrum, it would be possible to rollout LTE alongiside its current WiMax network, causing analysts to consider the potential of a Sprint and T-Mobile merger[11].

Business Overview

On December 15, 2004, Sprint and Nextel announced they would merge to form Sprint Nextel Corporation. While billed as a merger of equals, the transaction was actually the purchase of Nextel Communications by Sprint Corporation. At the time of the merger announcement Sprint and Nextel were the third and fifth largest wireless providers in the US mobile phone industry, respectively.

Sprint shareholders overwhelmingly approved the merger on July 13, 2005. However, Sprint and Nextel also faced some opposition to the merger - mostly from regional affiliates that provide wireless services on behalf of the companies. These regional affiliates felt that the new company would be violating non-compete agreements that the former companies had made with the affiliates. The merger deal was finally approved by the Federal Communications Commission (FCC) and US Department of Justice on August 3, 2005. The FCC placed a condition on the merger that Sprint is to provide wireless service within the 2.5 GHz band within the next four years.


Sprint offers a wide array of wireless mobile telephone and wireless data transmission services on networks that utilize CDMA and iDEN technologies. In addition, it provides a broad suite of wireline voice and data communications services targeted to domestic business customers, multinational corporations and other communications companies.

Business and Financial Metrics
During the third fiscal quarter of 2010, Sprint recorded its best quarterly wireless subscriber net additions since 2006, with a total of 644,000, as well as record quarterly postpaid churn of 1.93%. The latter can be attributed to high customer satsifaction and demand for Sprint's smartphone portfolio, which includes the flagship HTC Evo 4G[12], as well as the launch of its 4G wireless network, which offers consumers download speeds up to ten times faster than those of 3G services. Introduced in 1Q10, Sprint’s 4G service is now available in 43 markets serving nearly 51 million people, and is expected to reach 120 million people by the end of 2010[13]. Net operating revenues amounted to $8.2 billion during the quarter, although again net income stayed in the red with a net loss of $911 million. Despite uncertainty uncertainty among investors the past couple of years regarding its ability to meet upcoming debt obligations, Spring has maintained a strong liquidity position, generating $384 million in free cash flow and holding approximately $4.7 billion in cash and cash equivalents as of the end of 3Q10[4].

Annual Financial Information, in thousands[14][15]. 2006 2007 2008 2009
Revenue 41,028.0 40,146.0 35,635.0 32,206.0
Gross Profit 24,461.0 22,955.0 18,899.0 15,825.0
Operating Income 2,484.0 (28,910.0) (2,642.0) (1,392.0)
Net Income 1,327.0 (29,580.0) (2,796.0) (2,436.0)

Non-Financial Metric[16][17]. 2006 2007 2008 2009
Year-End Average Post-Paid ARPU $60.00 $58.00 $56.00 $56.00
Year-End Average Prepaid ARPU $32.00 $28.00 $30.00 $33.00
Year-End Postpaid Churn 2.34% 2.29% 2.18% 2.15%
Year-End Prepaid Churn 6.47% 7.47% 8.44% $6.25%
Net Postpaid and Prepaid Subscriber Additions 1,660,000 (685,000) (4,582,000) 1,132,000
Total Prepaid and Post-Paid Subscribers 45,817,000 45,239,000 49,265,000 48,133,000
Business Segments
Sprint currently offers wireless phone services under its Sprint PCS and Nextel brands. It is also a provider of landline, long distance, and business telecommunications, as well as Internet service under the name SprintLink. The revenue split for FY2009 between these businesses is shown in below figure.



Wireless (83% of operating revenue in FY2009[18])
The wireless mobile voice communication services of Sprint include a variety of basic local and long distance wireless voice services. Through a variety of roaming arrangements, the company also provides roaming services to areas in numerous countries outside the United States. Data communication services include wireless imaging, internet access and e-mail services, entertainment such as live radio and television, and location-based capabilities including dispatch services and navigation tools. These services are provided using a wide variety of handsets and personal computer wireless data cards manufactured by various suppliers. These devices are generally sold at prices below cost in response to competition, to attract new customers and as retention inducements for existing customers.

In addition, Sprint offers wholesale services on its network to resellers, commonly known as mobile virtual network operators, or MVNOs. MVNOs purchase wireless services from Sprint Nextel at wholesale rates and resell the services to their customers under their own brand names. Under these MVNO arrangements, the operators bear the costs of acquisition, billing and customer service. The company currently provides wholesale services, through multi-year, wholesale agreements, to a number of MVNOs, including Embarq, Movida Communications, Inc., Virgin Mobile, CBeyond, Liberty Wireless, Airline Mobile, and Tracfone.

Wireline (17% of operating revenue in FY2009[18])
Through the long distance segment, Sprint provides a broad suite of wireline voice and data communications services, including domestic and international data communications. Wireline is simply the wired connection between the customer and the phone companies circuits. Sprint also provides services to cable operators that resell the long distance service in support of their telephone service provided over cable facilities primarily to residential end user customers. Although Sprint continues to provide voice services to residential consumers, it no longer actively markets those services.

Network Infrastructure
Network infrastructure is fundamental to any mobile operator in order to provide mobile services. The mobile network enables customers to place and receive voice calls and allows the wireless carrier to provide other services, such as text messaging. Sprint offers its services over a CDMA network for Sprint-branded services and over a iDEN network for Nextel-branded services. The acquisition of Nextel has given Sprint access to communications towers erected for use in connection with the Nextel iDEN network, which enables Sprint to install CDMA cell site equipment on these towers, instead of erecting new towers or installing the equipment on towers owned by third parties, thereby reducing the company's cost

CDMA Network
Sprint-branded and wholesale wireless services are provided over a CDMA network, an all-digital wireless network with spectrum licenses that allow services in all 50 states, Puerto Rico and the U.S. Virgin Islands. The CDMA network uses a single frequency band and a digital spread-spectrum wireless technology that allows a large number of users to access the band by assigning a code to all voice and data bits, sending a scrambled transmission of the encoded bits over the air and reassembling the voice and data into its original format.

iDEN Network
Nextel-branded wireless services are provided over an iDEN network, an all-digital packet data network based on iDEN wireless technology provided by Motorola. Sprint is the only national wireless service provider in the United States that utilizes iDEN technology, providing a walkie-talkie like service under the Boost Mobile brand name. Unlike other wireless technologies, iDEN is a proprietary technology that relies principally on Sprint's and Motorola’s efforts for further research, product development and innovation, and iDEN handsets generally cannot roam onto wireless networks that do not utilize iDEN technology.

Trends and Forces

Slow Growth in a Maturing Market
Revenues from voice traffic for a wireless carrier are driven by its number of subscribers and the average revenue generated per customer (ARPU). In the US, the wireless market is almost saturated, allowing for small organic growth in any provider's subscriber base. According to CTIA, a telecommunications association that publishes semi-annual reports on the industry, total U.S. subscriber counts grew at an annual rate of 11% in the 2000's, compared to 33% in the 1990's[19]. CTIA also believes that the only significant sources of growth for wireless carriers are teenagers and competitors' customers (which has plagued Sprint).

Subprime Credit Customers are Vulnerable to Economic Downturns
In recent periods, Sprint has struggled in attracting new wireless subscribers for and lowering its subscriber churn. With profitable post-paid customers leaving Sprint, a large portion of the remaining customer base is subprime. While the company is in the midst of upgrading its customer base through more stringent credit requirements, it is estimated that 30-35% of Sprint Nextel’s total wireless subscribers could be sub-prime credit quality customers. These customers are particularly vulnerable in a slowing economy, and could drive higher than expected churn rates due to credit-related deactivations.

4G Network
Sprint entered into a partnership with Clearwire, Intel, Google, Time Warner, Comcast, Trilogy Equity Partners, and Bright House Networks, to build the first and only 4G WiMAX network, which is available in 43 markets and serves 51 million people as of the end of 3Q2010[20]. The partnership formed following The Federal Communications Commission approved Sprint’s $14.5 billion deal to merge its WiMAX business with Clearwire. The new company received $3.2 billion from strategic investors such as Intel, Google, Time Warner Cable, Comcast, and Bright House Networks in exchange for roughly 22% of the company[21][22]. By forming this joint venture Sprint is preempting its competitors AT&T and Verizon in the transition to a 4G offering. The two companies are investing in a technology called Long Term Evolution, and Verizon launched its 4G Mobile Broadband network in December 2010[23].

A Highly Regulated Environment
The telecommunications industry is a heavily regulated market. In the U.S., communications services are subject to regulation at the federal level by the FCC and in certain states by public utilities commissions, or PUCs. With regards to wireless, the FCC regulates the licensing, construction, operation, acquisition and sale of all wireless operations and wireless spectrum holdings. With regards to wireline, The Telecommunications Act of 1996 was designed to promote competition and eliminate legal and regulatory barriers for entry into local and long distance communications markets. It also required companies to allow resale of specified local services at wholesale rates, negotiate interconnection agreements, provide nondiscriminatory access to unbundled network elements, and allow co-location of interconnection equipment by competitors. It speaks for itself that in such a heavily regulated market, any significant regulatory change could have a major impact on the company or industry as a whole.

In early July 2009, both the FCC and DOJ have been asked by Senator Herb Kohl of Wisconsin to investigate anti-competitive practices in the cell phone industry [24]. The concern is that 4 companies (AT&T, Sprint, T-Mobile USA, and Verizon) control 90% of the market. Kohl has expressed concern about price increases by the four main carriers for text messaging at the same time. Kohl would also like to see better rates for roaming, a stop to exclusive deals with handset manufacturers, and acceptable rates in the so-called "special access" market where wireless companies pay other carriers to connect to central phone and Internet arteries. AT&T Senior Executive Vice President of External and Legislative Affairs James Cicconi responded to Senator Kohl's concerns by saying that this market is one of the most competitive, innovative, and lowest priced in the world. He said that 95% of the U.S. can choose between at least three different wireless providers, showing that there is not a lack of competition. Increased regulation or a break-up of the industry like what happened to AT&T in the mid-1980s would be very harmful to all wireless carriers as it would reduce margins considerably.

Competition

Although Sprint has struggled since its merger with Nextel in properly integrating its proprietary technology, it has outpaced its competitors in launching a 4G network. Sprint's network is available in 36 metro areas and is based on a technology called WiMax (Worldwide Interoperability for Microwave Access). Primary competitors Verizon Wireless and AT&T are still in the 3G phase, but expect to deploy their own 4G network soon based on a technology called LTE (Long Term Evolution). Verizon expects to set this network in motion in over 30 metro areas by the end of 2010, while AT&T is currently working on a speedier 3G network using an upgraded HSPA (High Speed Packet Access) system, known as HSPA+, and will begin offering 4G coverage in 2011. This technology is also used by T-Mobile's and is said to offer download speeds at 4G rates[2].

FY2009 Monthly ARPU Churn Rate Customers Total Revenue (in millions) Subscriber Market Share
Sprint Nextel 48.8 8.2
MetroPCS
Verizon Wireless 93.2 26.5
AT&T 92.8 31.6
T-Mobile
Leap Wireless
U.S. Cellular


First, operating results are still below those of Verizon, the market leader with regards to this metric, as the integration after the merger is not yet complete. For the past several quarters, results have been negatively impacted by costs incurred to achieve synergies between Sprint and Nextel. Sprint has spent just under $1B on costs related to the merger in 2006 and 2007 combined.[25] Such costs generally are not expected to be recurring in nature, and include costs associated with integrating back office systems, severance costs associated with the termination of the employment of certain employees, and lease and other contract termination costs.

Operator Customer Base, as of latest quarterly filing (in millions)
Verizon Wireless 92.8
AT&T 87.0
Sprint Nextel 48.1
T-Mobile 33.7[26]
Unconsolidated Minorities and Unidentified Others 8.1
MetroPCS 7.3[27]
U.S. Cellular 6.2
Leap Wireless 4.6
Centennial Communications 1.1
 
Last edited:
Top