Sprint ‘doomed’ unless it merges with T-Mobile, it tells FCC

Sprint ‘doomed’ unless it merges with T-Mobile, it tells FCC


SoftBank’s US mobile and wholesale operator Sprint has told the US regulator that it would be in a dire position unless it gets approval to merge with Deutsche Telekom’s T-Mobile US.

In a heavily redacted presentation (PDF here) to the Federal Communications Commission (FCC), Sprint admits it suffers from network shortcomings and is failing to attract new subscribers. The FCC is examining the proposed $26 billion merger

“We are losing a substantial portion of our [subscriber] base,” says the presentation, submitted by law firm Lawler, Metzger, Keeney & Logan, and signed by attorney Gina Keeney, a former senior official with the FCC. The presentation is in the name of Dow Draper, Sprint’s chief commercial officer – and the filing was spotted on the FCC’s website by eagle-eyed people at Bloomberg.

“Despite achieving substantial cost reductions and stabilising its financial position, Sprint has not been able to turn the corner with respect to its core business challenges,” Draper told the meeting.

“Sprint has attempted to position itself as a value leader with aggressive price promotions, but those efforts have not achieved sufficient growth or churn reduction to offset their cost. Given Sprint’s network investment needs, negative network perception, and declining share and service revenues, it will continue to face substantial business challenges.”

He lists the “historical decisions” that he says “have led to current challenges”, dating back to the Sprint/Nextel merger in 2005, which left it with two incompatible wireless technologies, and a further venture into WiMax in 2008 that gave it a third. The former Nextel’s iDen was shut down in 2011 and the WiMax service closed in 2012, and what Sprint itself calls a “rip and replace” technology strategy caused “network disruption and churn”.

There were further technological dead-ends, including a decision in 2015 to build monopole base stations that was dropped this year with $180 million written off.

The company admits that its network footprint “covers a much smaller geography and significantly fewer [heads of population] than other national carriers”, and produces the maps to prove it.

One screen of the PowerPoint presentation refers to quality of experience (QoE), though the actual figures are blanked out. The screen notes: “Customers with low QoE scores are much more likely to churn.”

Two screens further on, Sprint admits: “As a result of our network performance limitations and perception, Sprint has consistently had the highest churn in the industry and failed to retain its subscriber base.” Details are again blanked out.

It warns that “AT&T and Verizon both have strong wholesale relationships with TracFone, the largest prepaid competitor”, and adds: “Only a minimal portion of TracFone subscribers are on Sprint’s network.”

It says: “Sprint is becoming a smaller company and is actually losing scale, whereas achieving sustainable growth requires Sprint to increase scale.”

It has eliminated $10 billion in annual costs, but is “nearing the limit” in what can be done in further cost-cutting.

“Sprint has not been able to invest sufficient capital to achieve network performance necessary to attract and retain enough subscribers to improve its scale. Sprint can periodically increase capex spending to fund projects, but cannot sustainably spend enough to close the network performance gap with AT&T and Verizon.”

It admits that, “despite cost cutting, Sprint still must spend significantly more per subscriber, per month, to support its wireless offerings, illustrating scale disadvantages from low subscriber share”. It quotes the figures – surprisingly not edited out of the public version. Sprint spends $18.81 in fixed opex per customer each month, compared with AT&T’s $14.10, T-Mobile US’s $16.42 and Verizon’s $10.59. It also lags behind the industry in earnings and in free cash flow.

Sprint tried to focus on individual markets, a policy called localisation, but that “has not met targets needed to support investments”. It originally focused on 10 markets but cut those to six “due to lack of resources”: Chicago, Cleveland, Cincinnati, Orlando, Miami and Dallas-Fort Worth. It’s tried some other options, but essentially admits to the FCC that it’s run out of ideas.

It says gloomily that there is “no obvious path to solve key business challenges” – except, it seems, a merger with T-Mobile US that will be structured so that Deutsche Telekom has management control of the combined entity, which will retain the T-Mobile name.


Gift this article