Sprint Nextel (S), the third-largest U.S. wireless carrier, plans to consolidate its network and gradually terminate its iDen network from 2013. The decision follows Sprint's struggle to integrate its CDMA mobile network with Nextel's iDEN wireless network (acquired in 2005), which resulted in contant subscribers losses.
More than 20% of Sprint subscribers use the iDen network, including the prepaid Boost Mobile service customers. Sprint will replace the iDen network on CDMA-based phones in 2011, with a new version of Nextel's "push-to-talk" feature.
During the third quarter of 2010, Sprint added 276,000 post-paid subscribers from the CDMA network while it lost 383,000 customers from the iDEN network. With regard to prepaid subscription, Sprint added 1.2 million CDMA customers and lost 700,000 iDEN customers.
The network restructuring is expected to generate $10 billion to $11 billion in savings over the next seven years through efficient use of capital, curtailed energy costs, lower roaming expenses, backhaul savings and the eventual reduction of total cell sites. The restructuring is expected to be over by 2015.
Sprint will spend $4 billion to $5 billion to upgrade its network equipment in collaboration with Alcatel-Lucent (ALU), LM Ericsson Telephone Co. (ERIC) and Samsung Electronics Co. This is expected to reduce operating costs and provides enhanced services. As network consolidation involves large upfront payments for the first few years, we believe Sprint's profit will not improve until 2013.
The restructuring will also aid Sprint in upgrading to 4G technology, also known as LTE network. Expansion of 4G services is vital to Sprint's survival in the U.S. wireless market given its continued market share erosion in favor of larger rivals like AT&T Inc. (T) and Verizon Communications Inc. (VZ). The network upgrade will involve installation of new “multi-mode” base stations that can handle Sprint's existing 800 Mhz, 1.9 Ghz spectrum and its 4G 2.5 Ghz spectrum.
Currently, Sprint extends its 4G network in 68 U.S. markets via Clearwire Corp's (CLWR) network. This reach keeps the company well ahead of its rivals AT&T and Verizon. AT&T plans to roll out its 4G services in 2011, and Verizon has recently initiated the launch of its 4G services, which are expected to be available in 38 markets.
We are currently reiterating our long-term Neutral recommendation on Sprint.
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