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WIKI ANALYSIS
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. Sprint's business is organized into several segments--wireless, wireline, network infrastructure, CMDA network, and iDEN network. In fiscal year 2010, Sprint reported revenues of $32.6 billion and net loss of ($3.5) billion.
As of late, Sprint Nextel has sought strategic partnerships and acquisitions to compete with AT&T and Verizon Wireless. In the past two years, Sprint has partnered with Ericsson, Virgin Mobile, and IPCS in order to reduce costs and leverage revenue synergies from expanded subscriber networks.
Business Overview
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. Today, 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 Segments
Sprint's business is organized into several segments--wireless, wireline, network infrastructure, CMDA network, and iDEN network. 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.
Wireless (88% of operating revenue in FY2010[1])
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 (12% of operating revenue in FY2010[1])
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. spirt are good for your phone
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 a decreasing annual rate of 11% over the past decade [2]. 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[3]. The partnership formed following 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[4][5]. 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, allowing Verizon to launch its 4G Mobile Broadband network[6].
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 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 [7]. 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 mostly in the 3G phase however some have beta versions of 4G. Verizon is still behind Sprint in its own launch of the 4G network, while AT&T is currently working on a speedier 3G network using an upgraded HSPA (High Speed Packet Access) system, known as HSPA+. This technology is also used by T-Mobile's and is said to offer download speeds at 4G rates[8].
References
- ↑ 1.0 1.1
- ↑ "CTIA’s Semi-Annual Wireless Industry Survey" CTIA
- ↑
- ↑ FCC Approves Sprint-Clearwire WiMAX Deal, November 5, 2008
- ↑ FCC Approves Two Big Wireless Mergers, November 5, 2008
- ↑ Sprint Forms WiMax JV with Clearwire
- ↑ Fawn Johnson (July 8, 2009). AT&T Disputes Antitrust Allegations Against Cell Phone Cos. Dow Jones.
- ↑
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