The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
had an analyst day in New York City on Oct. 7, 2011 to discuss its Network Vision.
The event was highly anticipated, especially after a
Wall Street Journal
article detailing the terms of the contract Sprint reached with
to carry the iPhone.
Expectations were high, especially due to the expectation that Sprint would answer any questions that analysts may have, however unreasonable this was as it was in the quiet period ahead of its third-quarter earnings call where it general gives guidance.
Sprint management presented its case for the rapid deployment of a 4G LTE network in its own 1900 MHz band, the status of its partnership with Clearwire through 2012, and the impact of the Apple iPhone deal on customer metrics.
At the time of the break between the vision and the financial impact discussion, the stock had increased to $3.30. Things went a bit sour after the break. It should not have been a surprise that all of this costs money -- at least in the short run. What drove the stock all the way down to $2.13 on Monday was Sprint's somewhat incomplete delivery of the financial impact combined with the indignation of the financial community that it was not spoon fed all the numbers it demanded.
Since the presentation and analysts are working through what they heard, the stock valuation is coming up, reaching $2.80 as of Monday. So let's look at the fundamentals:
The market was shocked by the top-line numbers that were described in a Wall Street Journal article: 30.5 million phones for $20 billion over a four-year period. That's 7.5 million phones per year and Sprint pays $655 per iPhone.
Looking at the Apple's financials and dividing iPhone sales by units sold , Sprint got the same deal that everyone else is getting. Sprint sells overall around 22 million phones per year. This means that one out of every three devices sold will have to be an iPhone.
As a reference point:
sold 4.5 million in the first half of 2011 and
sold 7.2 million in the same period with both companies over twice the size of Sprint. A total of 4 million iPhone 4S were sold during the launch weekend. Putting it in perspective, Sprint's goal seems quite achievable.
Imagine how much the stock would have been clobbered if the Wall Street Journal ran a story that Sprint passed on the same deal for the iPhone that AT&T and Verizon accepted because it was "too expensive."
Move to LTE
Sprint's quarterly numbers prove that 4G is the future: Nobody has added more 4G subscribers in the first half of 2011 than Sprint did. It was absolutely critical that Sprint was reclaiming control over its future with a technology that is compatible with the rest of the world. Sprint needs to be able to prioritize market build-outs to where it makes the most sense for them, something that they cannot do as part of the Clearwire relationship. It should have also been clear that Sprint would not be able to pay for all of the network upgrades through cash flow, but raise some debt.
WiMAX and Clearwire
A lot of analysts went away from the Analyst Day with the wrong impression about Sprint's commitment to WiMAX and
. While Sprint said that it has contracts with Clearwire through 2012 and that it can only speak about the existing contracts it has, this should not be misconstrued as Sprint cutting the cord with WiMAX and Clearwire.
It will sell WiMAX devices until the end of 2012, but that also means that Sprint customers will be using these devices for several years longer and hence Sprint will have to buy WiMAX capacity from Clearwire.
Furthermore, Sprint is Clearwire's largest shareholder and it is in Sprint's best interest that Clearwire succeeds. Both companies are negotiating on how their cooperation will develop beyond 2012. Considering that Clearwire's stock declined substantially more than Sprint's, we can assume that the terms will be more favorable to Sprint than before, but still ensure Clearwire's survival and its transition to TDD-LTE. With
MDM9615 chipset that combines TDD- and FDD-LTE, EV-DO, and HSPA+ on one chip, the future of sufficient devices that can navigate Clearwire's and Sprint's networks should be set.
Lightsquared is an easy opportunity for Sprint to create pure upside. If Lightsquared can fix its GPS issues then Sprint will profit from the cooperation from both companies. If Lightsquared is unable to resolve its problems, then Sprint will not lose anything.
AT&T / T-Mobile acquisitionHowever this will play out in the courts, we already know that Sprint will be the winner. If AT&T absorbs T-Mobile, the lower budget former T-Mobile customers will not suddenly increase their wireless spend, but over time look for a new carrier.
Sprint as the value leader in the industry is clearly going to benefit from that transition. If the courts do not permit the acquisition of T-Mobile by AT&T, then T-Mobile's customers are in even worse shape if Deutsche Telekom keeps its promise to stop investing in its US subsidiary. The lack of investment in its HSPA+ network and the lack of funding get the necessary spectrum to build an LTE network will leave T-Mobile behind as the other operators move forward into the future with LTE in an increasingly data centric world.
In summary, Sprint's plan for the future is sound. The future is in wireless data and LTE is the way to go. The company cannot afford not to have the iPhone. The numbers of the three iPhone haves compared to T-Mobile as an iPhone have-not will be clearly shown in the fourth-quarter 2011 numbers. T-Mobile is clearly wounded and will serve in one incarnation or another as subscriber feeding ground for the other carriers.
At the time of publication, Roger Entner did not own any equities mentioned.
Roger Entner is an independent analyst who lives near Boston. Previously, he was head of telecom research at Nielsen, and has also worked at Ovum and the Yankee Group.