Sprint PCS Sees Daylight in Wholesale Market

The wireless telco ups capital spending plans in hopes of cornering a stealthy but healthy niche.

Author:: Scott Moritz
Publish date:: Feb 4, 2004 12:27 PM EST

Sprint is getting ready to pump more cash into its expanding wireless operation as land-line prospects continue to slide.

Sprint executives shared their 2004 business outlook with analysts at a conference in New York on Wednesday. They called for increases in

Sprint PCS

(PCS)

sales that will help offset declines at Sprint FON group. And while the company's guidance was mostly in line with expectations, there was some clear upside: Sprint's rising spending -- enabled by a plan to cut customer service costs through an outsourcing deal with

IBM

(IBM) - Get Report

-- shows the No. 4 long-distance and wireless company isn't standing pat with a weak hand.

Shares of Overland Park, Kan., telco Sprint FON fell 34 cents, or 2%, to $17.61, while Sprint PCS rose 12 cents, or 1%, to $8.25 in midday trading.

According to the plan, 2004 capital spending for the Sprint PCS wireless unit will jump by $250 million, or 12%, to $2.4 billion this year. Spending at the Sprint FON group will see a $70 million decline to $1.6 billion.

Sprint now joins

Verizon

(VZ) - Get Report

as telcos raising their spending targets this year. Though small, the increases underscore a favorable trend for wireless infrastructure suppliers like

Lucent

(LU)

and

Nortel

(NT)

, chip supplier

Qualcomm

(QCOM) - Get Report

and handset makers

Samsung

and

Sanyo

, according to Lehman Brothers analyst Tim Luke.

But unlike Verizon's decision to push ahead with faster evolution data-only, or EV-DO, upgrades, Sprint says it will stick with its 1xRTT network expansion. Characterizing EV-DO as more of a laptop connection, Sprint says it will stick with 1xRTT to serve picture-swapping and messaging on phones.

Sprint needs to expand its wireless coverage and capacity to accommodate a rush of new customers from resellers

Qwest

(Q)

and

Virgin Mobile

The move fits what some analysts see as a big opportunity for Sprint to sell wholesale wireless services. With rivals like

Cingular

and

AT&T Wireless

(AWE)

threatening to merge into a strong No. 1 player, that would leave Verizon as the big No. 2 and Sprint a distant No. 3. Wholesaling could give Sprint a strong differentiating strategy.

"Sprint has always had a higher market share in the wholesale market then they did in the retail market," says Jefferies & Co. analyst Rick Klugman. As wireless growth slows down and competition heats up, wholesaling becomes more viable, especially if Sprint PCS doesn't have "enough marketing muscle to fill their networks on their own."

Company executives told analysts Wednesday that they are looking at "other wholesale relationships," but will continue to try and balance their retail and wholesale efforts.