Blog Post

Sprint’s James Franco moment could end badly

Sprint, with its network modernization announcement on last Friday has set the stage for one of two things: another spectacular, Nextel-style failure or a corporate turnaround for the history books. Sprint laid out plans for its LTE network that involve it going alone with the help of an unknown instead of its former 4G partner Clearwire. It will do this with scant spectrum resources as it walks a tightrope with its finances and brings on a data-intensive handset at great cost.

From here, Sprint’s decision to build out an LTE network on its own sparse spectrum, while simultaneously betting big on the iPhone and unlimited data, is kind of like someone chewing off her leg to get out of a bear trap, and then signing up for a marathon the next week.

It’s possible that it could win, but more likely its many challenges that I laid out in a GigaOM Pro report (subscription required) published today, will cause it to disappoint its customers, shareholders and still won’t get it any closer to closing the gap that exists between it and the nation’s top two carriers, AT&T and Verizon. Some of its challenges include:

  • Sprint is betting big on the iPhone, which could cost it more in terms of subsidies and the outlay for the device. This will burn through Sprint’s cash resources, when it is also spending big to build out its LTE network by the end of 2013.
  • A looming debt payment of $2.5 billion in March, plus the cash outlays associated with building out its network make it difficult for Sprint to acquire new spectrum without upsetting shareholders or bondholders. On Monday its debt was placed on Credit Watch by Standard and Poor’s, as an indication of the rating’s agency’s doubt.
  • Despite its bet on the iPhone, Sprint must transition to a 4G network, and do it soon. It will do this by using its PCS spectrum that’s currently allocated to 2G and 3G services. So while it is signing up a bunch of iPhone customers that really like their data on its 3G network, it has a huge incentive to stop pushing 3G so it can reallocate its spectrum for next-generation services.

Sprint is making the only moves it can after making some bad bets in the past. We’ll see if it becomes the kind of underdog success story case studies are written about, or if it continues to falter. For more, check out my GigaOM Pro report.

4 Responses to “Sprint’s James Franco moment could end badly”

  1. Jeremy Titus

    With my job I get/have to carry many different phones all on diff carriers and I have to say that my Sprint phone outperformed the rest almost every-time except when high in the mountains. Verizon is the most annoying one I carry and ATT is of coarse the most restrictive one. All this being said, I purchased the Sprint EVO for myself and love it.

  2. There has been much made of the capital required for Sprint to buy all those iphones. Since Apple doesn’t even recognize iphone revenue immediately, is it unrealistic to think that Apple will be be financing those iphone subsidies for Sprint? Sprint gets $80/mo for the iphone account, if they gave half of that to Apple every month for a year, that should cover the subsidy. Apple has around $70 billion in cash, I think they could afford it. they help finance their suppliers, and there shouldn’t be a reason why they can’t help finance their service provider partners.

    If they get LTE from Lightsquared, they will not be financing most of that buildout. They can afford this.

    This capital crunch they are facing would be lessened if they unbundled phones and service for customers who want it. Bring your own phone, get $25 off the monthly price. Even if Apple did help with the iphone, this would save them the cost of capital for a lot of Android phones.

  3. Didn’t Sprint try and fail in the late ’90s to build out its network more cheaply than anyone else? If I remember correctly, their base stations had much less range than expected, causing dropped calls or other access outages.