Sprint Corp Drops Out of 2016 Spectrum Auction -- What Investors Need to Know
The past year has been rocky for U.S. telecom never-say-die story Sprint , as it battles to remain relevant against deep-pocketed and scrappy rivals such as Verizon Communications , AT&T , and T-Mobile .
One of the highest-profile events affecting the entire U.S. telecom market in the coming year will be the FCC auction of a particularly high-quality batch of spectrum, the lifeblood of the modern wireless network, next March. However, Sprint recently announced that it will remain on the sidelines of what should be the most important storyline in telecom next year.
Sprint sitting this one out
Although nearly a half-year remains until the auction, Sprint has already said it won't participate. Instead, it will focus its limited capital on deploying its current spectrum cache to help drive more immediate improvements in its service quality, a tactic that outspoken T-Mobile CEO John Legere claimed only served to redirect investors and the media from Sprint's precarious financial situation.
Whether this decision will damage Sprint's long-term competitive position remains unclear. According to reports, the FCC is planning to secure specific sections of low-frequency spectrum that companies without much of it, such as Sprint and T-Mobile, can later bid on. Aside from helping improve the quality of Sprint's spectrum footprint, this could also lower the cost of acquiring this high-quality low-frequency spectrum for rival T-Mobile, which recently leapfrogged Sprint to claim third place among U.S. wireless carriers.
In addition to T-Mobile, telecom giants AT&T and Verizon both plan on participating in next year's spectrum auction. Some industry observers also believe some kind of outside player, such as a technology or cable company, might also elect to purchase some spectrum to meet possible future wireless needs.
Sprint already enjoys a huge amount of spectrum, in large part because of its 2013 acquisition of failed mobile Internet provider ClearWire. However, much of Sprint's spectrum stockpile consists of lower-quality high-frequency spectrum, which requires Sprint to install more cell towers per area to provide comparable service to the likes of AT&T and Verizon. So this storyline only serves to reiterate the current divergence between Sprint and the three larger U.S. carriers.
The rich get richer
AT&T and Verizon hold commanding leads over Sprint and T-Mobile in terms of subscribers, which gives the two industry giants considerable competitive and resource advantages over their smaller competitors. Here's how they ranked at the end of the second quarter.
In the now two-plus years since Japanese telecom giant SoftBank acquired 72% of Sprint for a whopping $22 billion, the parent company's affection for Sprint appears to have dwindled considerably. According to The Wall Street Journal , SoftBank CEO Masayoshi Son had always planned to merge T-Mobile and Sprint to form an entity large enough to effectively combat Verizon and AT&T. However, with the U.S. telecom regulatory climate having demonstrated a strong bias against whittling industry consumer options from four to three, the deal never materialized, leaving SoftBank with a huge money-loser in Sprint.
Rather than engineer Sprint's expensive turnaround on his own, Son has reportedly shifted his focus back toward managing other aspects of SoftBank's investing operations. Instead, Son replaced longtime Sprint CEO Dan Hesse with his lieutenant, Marcelo Claure, who has worked to institute somewhat of a culture change at the company, hoping to combat an environment that some, reportedly including Son, found ineffective and inefficient. Son claims the $2.2 billion in cash Sprint burned in its most recent quarter has it nearing the trough of its cell-tower rollout. However, given the current struggles relative to its competitors, Sprint must next be able to gain new subscribers against heated price and incentive wars from the competition to remain relevant in the long-term as well.
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The article Sprint Corp Drops Out of 2016 Spectrum Auction -- What Investors Need to Know originally appeared on Fool.com.
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