Weekly Telecom Notes: Sprint & Verizon

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The past week saw quite a few developments in the telecom sector. The week started off with Sprint's ( S ) stock falling 6% Monday on fears that it may be mismanaging its Network Vision project and incurring higher capital expenses than previously anticipated. Sprint then announced that its LTE network will be launched on July 15th, giving its stock some much needed respite. Verizon ( VZ ) moved closer to getting FCC approval for its proposed spectrum purchase from the cable companies by announcing a spectrum swap deal with T-Mobile, one of the foremost opponents of the Verizon-cable deal. The largest wireless carrier also became the first in the industry to launch multi-device data share plans this week.

Sprint

Sprint's shares fell 6% Monday on fears that it may be mismanaging its Network Vision project and incurring higher capital expenses than previously anticipated. According to Bloomberg, citing a Detwiler Fenton & Co. report, Sprint reclaimed about 250 employees that were previously assigned to Ericsson, its principal network equipment vendor. The critical report called the reassignment of employees a 'black eye' for Ericsson and saw it as a sign of trouble for a heavily debt-laden Sprint that is aggressively trying to execute its multi-billion dollar Network Vision strategy.

While the market's nervousness is understandable considering the high sensitivity of Sprint's stock to an increase in capital expenditure and its highly leveraged balance sheet, we believe the shift in employees must be seen in the context of the changes that Sprint's network is seeing now as against 2009 when it had signed on Ericsson to manage its network. In Sprint Is Worth $3.75 But Expansion Costs Worry Investors , we discussed how the shift of employees was warranted and is not necessarily a mismanagement of resources.

Almost as if in cue to assuage fears that it may be botching its Network Vision Plans, Sprint announced that its LTE network will go live in five cities on July 15th. The five cities in question are Atlanta, Dallas, Houston, San Antonio and Kansas City. With Baltimore soon to follow, the company will make good on its promise of launching LTE in six cities by the mid-year. (see Sprint Sets July 15 LTE Launch Date )

Verizon

Verizon took a big step forward in getting its spectrum purchase deals with the cable companies approved through an AWS spectrum swap deal with T-Mobile announced on Monday. T-Mobile, along with Sprint, has been a vocal critic of the Verizon-cable deals and Monday's announcement should alleviate concerns that the country's largest wireless carrier is trying to hoard spectrum.

The FCC is also likely to take a more favorable view of the cable spectrum purchase in the aftermath of this deal. ( Verizon Swaps Spectrum With T-Mobile; Moves Closer To Getting FCC Approval ) Verizon had announced the controversial $3.6 billion deal with SpectrumCo, a joint venture formed by Comcast, Time Warner and Bright House Networks, to buy all its AWS spectrum late last year in December. Soon after, it signed a similar deal with Cox Networks to add to the spectrum pile it is building to bolster its LTE plans.

Verizon also introduced the much talked about Share Everything plans on June 28th. Once these multi-device data share plans take effect, Verizon will scrap the older family as well as individual tiered plans for new Verizon customers. While the existing Verizon subscribers with tiered data plans won't be forced to change their plans when they upgrade, the ones with the unlimited data plans will have to switch to one of the tiered plans unless they purchase an unsubsidized phone.

Unlimited plans have become highly unprofitable for Verizon and AT&T, both of which stopped offering the plans last year as the demands on their networks increased due to growing smartphone usage. As 4G LTE becomes the new standard and spectrum gets scarcer, Verizon will be looking to gradually kill these plans completely and monetize every last byte of data that is transferred on its network. (see Verizon's Share Everything Plans Could Kill The Last Unlimited Plans) It will also look to drive the adoption of other data-only connected devices such as tablets, telematics and M2M devices as we expect most of the future growth to come from these devices.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: CMCSA , S , T , VZ

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