Sprint, Clearwire, and Softbank: Watch Out Competitors

Jacob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Sprint Nextel (NYSE: S) operates in two segments: Wireless and Wire line. With the acquisition of Clearwire (NASDAQ: CLWR), the company has increased its depth of the spectrum and can be a good addition in one’s portfolio for the long term. For a long time now this carrier has found it hard to make a mark in a wireless industry still dominated by Verizon and AT&T. Even in its LTE roll out, Sprint is well behind its two larger rivals. But with Clearwire’s huge spectrum and Softbank’s backing, the carrier could soon be a major player as spectrum become scarcer, high-speed 4G LTE becomes standard, and subscribers get hungrier for data.

Mixed Financials

For the quarter ending Sept. 30, the company reported an operating loss of $231 million. They also recorded a net loss of $767 million and a diluted net loss of $0.26 per share for the third quarter of 2012. Revenue for the period jumped 6% yearly, but revenues decreased by $8.8 billion in Q2 2012

As always, the iPhone plays the most important role in Sprint’s story. According to the company, this quarter it activated 1.5 million iPhones. That’s flat compared to 1.5 million last quarter, and 40% of that denotes new customers. The post-paid subscriber base grew with net additions of 410,000.

Acquisition of Clearwire- the turnaround

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Sprint has made an agreement with Clearwire to purchase all the company's remaining shares for $2.97 each.  If the FCC accepts this transaction, Sprint will be the largest spectrum holder in the United States, with an average of just over 200 MHz of the spectrum across the country. According to the National Broadband Plan, there is 547 MHz of spectrum usable for wireless broadband. Sprint, if the transaction is approved, will possess more than a third of the available spectrum allocated by the U.S. government, but with less than one sixth of U.S. customers. That gives Sprint (on average 200 MHz and 56 million subscribers) the chance to use roughly 3.57 MHz of spectrum to support each of their subs. Compare that to Verizon (on average 105 MHz and roughly 100 million subscribers) which has only 1.05 MHz of spectrum to upkeep each customer’s uses. More spectrum mean faster speeds, larger capacity, and a stronger competitive position.

 

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By being the biggest spectrum holder in the United States, owning approximately as much spectrum as AT&T (NYSE: T) and Verizon Communications (NYSE: VZ) combined and having fewer subscribers than both, Sprint will have better elasticity to advance its network and business plans to contend with Verizon and AT&T. As spectrum is the key to run these operators, the shift in the competitive scenario can be truly strong. With massive spectrum, Sprint can build an LTE network the right way, as it has considerably less traffic on its network. Having more spectrum than its competitors will help Sprint offer the best combination to consumers – low prices and better speed.

Investment in wireless network

Sprint has propelled 4G LTE in 49 markets, and the company is rolling out LTE in 150 markets in the coming months. Sprint has also applied 3G service improvements in more than 70 markets.

Customers can anticipate experiencing the following performance improvements:

  • Faster data speeds that allow instant Web access for news updates, HD viewing and game-playing, faster video downloads and clear video chats.
  • Stronger signal strength when making a call or using the Web.
  • Fewer dropped calls.
  • Enhanced voice quality and less static or background noise when making phone calls.

Conclusion

The recently announced Sprint Clearwire deal brings a substantial change in the company’s financial and competitive position, and is another breakthrough for Sprint. Pooled with the new spectrum holdings, this would empower the company to strive more efficiently and aggressively from next year onwards, when its LTE network is fully functional and comes online. Even though there is the possibility of its margin remaining under pressure due to substantial capital spending, the accomplishment of the deal at $2.97 will be encouraging for the shares of the company as well as its long-term health. Moreover, after the procurement of Clearwire, Sprint’s enlarged spectrum depth increases the possibilities of it evolving as a very strong rival to AT&T and Verizon by the end of next year.

Even though the company still has to travel a long way to match its bigger rivals, it has taken a solid move towards a chance to compete more effectively. Enhanced spectrum position, liquidity, and better operations can be the potential it needs to carry its share price to the new heights in the coming days.


valuewalk has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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