“Analyst: Sprint's Network Upgrade Will Net $2 Billion In Savings Annually” |
| Analyst: Sprint's Network Upgrade Will Net $2 Billion In Savings Annually Posted: 30 Nov 2010 09:51 AM PST Investors have long been waiting for a turnaround from Sprint Nextel. Credit Suisse analyst Jonathan Chaplin thinks the carrier's planned network upgrade is the key. In a Nov. 30 note to investors, Chaplin estimated the cost of the upgrade, which is expected to begin in early 2011, at $6.5 billion. Since the work will condense and modernize its network, however, Chaplin also believes that Sprint will save at least $2 billion in maintenance and roaming costs. Those savings would add $2 a share in incremental value to Chaplin's current price target of $6. The projections could make Sprint a more attractive investment. In his note, Chaplin, who has an "outperform" rating on the company, noted, "While investors will likely remain skeptical until the [upgrade] project is well underway, we believe the value creation possibilities will make Sprint increasingly difficult for value oriented [investors] to ignore." Chaplin's estimate of $8 per share in potential value makes Sprint the only large-cap company in his coverage area that he believes could double over the next three years, he added. Sprint has not detailed its upgrade plans yet, though it is expected to do so in December or January. Chaplin made his calculations with the help of network engineers and industry consultants, including Atish Gude, who used to head strategy at Nextel and Sprint and served as the Chief Marketing Officer at mobile broadband provider Clearwire until Nov. 2009. In a Nov. 30 investor call hosted by Chaplin, Gude backed up Chaplin's estimates. Sprint, he agreed, will probably reap $1 to $1.2 billion in roaming savings by installing new base station technology and repurposing some spectrum currently used for its older iDEN network, which supports push-to-talk phone technology. Another $1 billion is likely to come when Sprint completely shuts down the iDEN network and 20,000 related cell sites. During the call, Gude said he thinks that will happen between 2012 and 2014. Modernizing its network will not be cheap. Chaplin estimates that Sprint will require 46,000 to 48,000 base stations to give its customers national coverage. Each base station will cost about $30,000 in equipment and $10,000 to $15,000 in installation work, for a total of about $4 billion, according to Gude. Adding in new antennae, which cost about $15,000 per pair, will add "another couple million dollars" to the tab, he said. The upgrade is well worth it because Sprint will benefit from lower expenses and better service, Chaplin contends. Its current setup, in which it operates two discrete networks, requires it to support many more cell sites than its peers—39% more than T-Mobile USA, for example. Eliminating these sites and beefing up its core network will improve reception while decreasing roaming costs, said Chaplin. The moves should enable Sprint to boost its margins, which are below T-Mobile's even though Sprint boasts 46% more subscribers. The changes will also give Sprint flexibility to respond to future trends. While the company's initial deployment will be to the third-generation (3G) technology CDMA, Gude said the new base stations will support fourth-generation technologies like WiMax and LTE. Upgrading to 4G will simply require the insertion of a channel card, at a cost of $5,000 to $7,000, into each base station. "The new antennas and base stations are all leverage-able as Sprint goes to LTE," said Gude. "With this upgrade, Sprint becomes a very strong competitor." None of these scenarios take into account potential network integration with Clearwire, the Washington-based 4G broadband provider in which Sprint holds a majority stake. Clearwire is struggling to raise money to continue building out its own WiMax network. Sprint could lower its expenses and capital requirements by merging operations with Clearwire, noted Chaplin. He expects Clearwire to resolve its funding issues before year-end. This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
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