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Executives

Dan Hesse - Chief Executive Officer

Analysts

John Hodulik - UBS Securities

Sprint Corporation (S) UBS 41st Annual Global Media and Communications Conference Call December 10, 2013 2:30 PM ET

John Hodulik - UBS Securities

Thank you all for joining us. I'm John Hodulik, the cable, telecom and satellite analyst here at UBS, and I'm very pleased to announce that our next speaker is Dan Hesse, CEO of Sprint. Dan, thanks for being here.

Dan Hesse

Thank you, John, good to be here, although I kind of feel like it's a bag of executives sitting up here in a long line of chairs and microphones.

John Hodulik - UBS Securities

Hopefully it won't be quite [indiscernible]. So the format is, obviously we have about 45 minutes. Dan and I are going to run through some Q&A and then we'll have some time for questions from the audience. So Dan, 2013 has been a big year for Sprint given the closure of both SoftBank investment and the Clearwire transaction. Can you set the stage for us in terms of how you believe Sprint is positioned and what can we expect from the Company as we look out into 2014?

Dan Hesse

Thanks, John, and thanks for your interest in Sprint and being here, and obviously 2013 has been a very eventful year with a couple of pretty sizable important transactions, like Clearwire and SoftBank. In terms of 2013 and where we are right now, is really 2013 has been a year of building Network Vision and of course Spark which we announced on the 30th of October. In essence, what we are going through now with this massive build is some short-term pain for some long-term gain, and even though last quarter we have got some positive elements like growth in EBITDA in spite of dilution from Clearwire and the other if you will investments with record ARPU, but of course elevated churn associated with not only can we shut the iDEN network down on July 1, and if you will the Sprint brand or the CDMA customers, even though we were successful in recapturing 40% of those customers which was about three times higher than we'd expect given our overall market share, we still lost 60% of those business accounts or the CDMA or Sprint brand, parts of those accounts if you will come off in Q3 and Q4 that we have described.

And then as we are building out Network Vision, a lot of people don't realize it is, it is something that really hasn't been attempted on this scale before, it's a complete rip and replace of the entire network, all the 3G equipment coming out, every base station, all the backhaul, every switch, and in almost all cases the vendors changed as well. So it's a complete 3G rip-out and new 4G network. So as a result of that of course, there are what we call dust issues in a lot of our markets. So we have seen elevated churn as a result, and personally it's something that's painful to me because we have worked so hard on the customer experience and customer service where the American Customer Satisfaction Index recognized us this year as the most improved U.S. company across all 47 industries they study in customer satisfaction over the last five years. Then we have gone basically from last to first in our industry. And of course the short-term network issues are impactful from a churn perspective but we believe that what we are building, and that's why we picked the name like Spark, we didn't want to call it 4G LTE Turbo or what have you, we wanted to pick a different name and we can chat about that, it's something that is worth waiting for, for our customers.

John Hodulik - UBS Securities

So let's dig into the Spark network strategy a bit and really focus on the spectrum that you have that supports that. So a big part of the Spark side uses the tri-band, [indiscernible] and getting tri-band devices. Can you update us on where you are in terms of rolling out the 2.5 GHz spectrum?

Dan Hesse

I think it's important about Spark because clearly what makes it possible kind of the foundation of Spark is this big slot of spectrum, this 2.5 spectrum that we bought from Clearwire, and it's a unique set of spectrum assets where we have if you will in the vast majority of the country 120 or more megahertz of contiguous spectrum, and that's generally what people focus on. But the reason that October 30th – and by the way, in terms of what we showed off in our Burlingame labs and if you contact Brad Hampton here for those of you who actually want to see the demonstrations, it's still up there and working if you want to see what Spark does. It's really to explain all of the other leading-edge technologies that we are putting into this new network. So it's a lot more than just the 2.5.

So one is 8T8R, which is 8 transmit 8 receive, and actually 2.5 makes that possible because of the in essence very high frequency. We can put basically 8 transmit 8 receive on the base station, so basically the base station radios. We can get much better link budgets for much better coverage than you traditionally think about from 2.5 or very high frequency, so much closer in performance to like 1.9, and we are the first carrier in North America to roll that out.

So we have the opportunity particularly what you can show as in fringe areas or indoors, much, much better coverage than what you would have expected from 2.5, what we call MIMO, multiple in multiple out, at the device level. We have what's called 4x2 downlink MIMO, so you have 4 receivers 2 transmitters at the device level, gives you a lot more bits per hertz or capacity on your network. The big piece which really the 2.5 makes possible is what we call carrier aggregation, but not just a whole lot of spectrum but what carrier aggregation is, is the ability to take slots of spectrum and basically aggregate them together, smaller pipes into really a much more massive pipe for much faster speed.

So even though if you looked at recent speed test that were done here in New York as we launched Spark in New York, my gig on the laptop, good speed tests on what we called 1x carrier aggregation. So 1x 20 MHz, actually there's two of them, so you have a total of 40 MHz. A year from now, we'll have 1x or actually 2x 20 or 80 MHz, and then a year after that, 3x 20. So you can anticipate that we have three times those speeds. So the peak speeds that we can offer now, basically 50 to 60 megabits per second, in two years will be more like 150 to 180 megabits per second because we have 120 MHz of spectrum on Clearwire and what we are able to do is rather than have a whole bunch of 20s, slap them basically into two big mass of 60s that can go really, really fast and that's leading-edge technology.

The other thing about the 2.5 that is particularly important as we go to high-speed data is what's called TDD spectrum, Time-Division Duplex, TDD, which is different from the traditional spectrum that's used let's say by AT&T or Verizon or T-Mobile or quite frankly on Sprint. It really is not used much in United States, but because it's TDD, you can basically make it asymmetrical. So you can allocate a lot more of it to the downlink, so maybe three or four times as much to the downlink as the uplink. So you can get faster speeds and because data traffic is not symmetrical, you can basically align your network to be asymmetrical. That's another advantage of TDD.

An important element of it is also the devices, and of course HD voice – I don't want to not mention that just as a capability. I don't think it will be that long before people will say, let me hang up this landline and call you back on my cell phone so we get a better connection. If you think of like perfect human hearing can hear about 10 octaves and the typical cell phone operates at four octaves, and what this does, HD voice expands that to seven octaves, basically two more octaves on the low end, one more octave on the high-end, plus it adds in noise cancellation. So if you are in a car, on the street, in an airport, in a crowded cafe or restaurant, it does a phenomenal job of cancelling out the background noise. So the sound quality is a lot better as well.

So, all of those things kind of go into Spark to make it really unique and a lot more than the 2.5. But it's a very important question if you will that the 2.5 is really what gives it that turbo boost of speed. And so we'll have about 5,000 sites up by the end of this year and we have announced if you will five markets that we have roughly 25% coverage in, including New York, and that's why you are seeing some of the speed testing done in New York, the others being Chicago, LA, Miami and Tampa, and we expect to have about 100 million POPs up of the 2.5 by the end of next year, so by the end of 2014.

John Hodulik - UBS Securities

I think I got you. And at the same time while you are rolling out the 100 million POPs, you are doing the backfill of these markets, like for New York for instance you said you'll roll out in the market when you have 25% coverage. Are you still working to do the infill and then maybe talk about your strategy there, is it more macro-sized or is it having a reliance on small cells or how do you get the kind of density that you're going to need to put these higher SKUs in this market?

Dan Hesse

We are going to in essence increase the total number of cell sites, but macro sites we'll have about 55,000. We think that will be roughly the number of sites, which is a lot of sites, across the country, but then begin augmenting that with smaller sites, smaller cells, and we'll start doing that probably in the later part of 2014. So take New York, and let's say we're 25% in New York, we have got a lot more macros that turn up as well as LTE at 1.9, LTE at 800. That's the other thing about our network which is, it has low, medium and high band spectrum, each of which has its own advantages and disadvantages.

We have the most 1.9 which is kind of the old PCS band, the old Sprint brand band, has the most coverage of LTE right now than the 800. We are just now starting to put LTE on 800. We started putting voice on 800 in the first quarter of this year. So we needed more spectrum freed, we needed to get all of the basically the Nextel customers off the network before we could start LTE because we needed the lion's share of the 800 spectrum. We needed 10 megahertz in other words before we could start the LTE. So the LTE is just starting now. And then the 2.5 will follow that from filling it in.

So in essence if you think of New York, we would have our best coverage at 1.9, 800 following it very quickly and that's primarily through in-building and filling in gaps, and then for kind of the turbo if you will you have the 2.5 coming in, and it will take a while to finish from 25% to 100%. And then we will be adding smaller cells to the macro cells over time for capacity and for speed.

John Hodulik - UBS Securities

Now you said – the next topic is the redeployment of 800 and you said you just started to deploy the voice on the 2x2 of the 14 MHz you have at 800 and then the LTE So I guess the first question is, when will Sprint customers begin to see the improved voice quality that you'll get from the in-building penetration from that 800 and does that work with existing handsets?

Dan Hesse

It does work with existing handsets. We have been seeding handsets that have basically that 800 voice capability for a couple of years now. So the majority of our devices will have if you will that capability. But you'll see the big increase in voice quality actually when you take out very early version of CDMA in 3G EVDO and replace it with the new CDMA. It provides much better link budgets, better coverage. And so that actually by itself, even without the 800, we are seeing dramatic improvement, and voice call is absolutely helping now, and again we started putting voice on 800 in the first quarter of 2013. So that's augmenting it even further.

And voice is really – we're trying to be still the killer app and it is what drives churn more than data and satisfaction because it's the most noticeable. So we are really, really focused on improving the voice quality of the network and actually this is the part that the customers notice the most when we are ripping up the old and putting in the new, is they notice the voice right away, either a dropped call or a blocked call: So it's a very high priority.

John Hodulik - UBS Securities

So in the areas I know you were talking about the part about dust sort of churn, but in your more advanced Network Vision market, you are seeing better, fewer dropped calls the stats that you look at to make sure that the voice quality is improving and then the customer experience is improving?

Dan Hesse

Absolutely. If you take a look at end markets and each market is on basically a different timescale in terms of when we begin and finish Network Vision, but Chicago is the one that's probably gotten the most press because it was one of our very first markets and of course a very large market, and what we saw was as we – and it is also the notion of all the issues associated with changing vendors. So in Chicago, Motorola was our equipment vendor for both the iDEN network and for CDMA and that's being replaced by Samsung. So it's just a different vendor.

So basically call blocks and drops started to go up, that's a bad thing, and of course following that then you see churn go up. As you get to roughly 70% complete with your voice, we begin to see a significant improvement in voice quality blocks, drops, other ways that you measure voice, and churn starts to come down where it begins to get better and better as you build out more of that voice network. And what we find is, we can see a direct correlation to let's say a customer who is in a section of town even where Network Vision is complete, where the towers that use it the most are those that are already completed with just 3G, the new 3G voice on 1.9, their churn characteristics improved significantly.

So as we predict and look forward in 2014, we have looked at the markets in 2013, you can pretty much follow if you will churn getting worse as you begin to build Network Vision, but then when you get to a certain point, it starts to improve and improves to a level that was much better than the starting point when you get it well behind you. But there is if you will that kind of a short-term pain to go through, and this is kind of the issue that we have right now is we have a number of quarters still, this quarter in fact a couple of more, where we're still going to be doing a lot of building. So you see in essence the churn being pressured, and then by about mid-year 2014, we expect to have that largely behind us and we'd see if you will better churn characteristics.

John Hodulik - UBS Securities

So it seems given your buildout schedule about mid-2014 number, is it probably a peak number then we start to head down maybe in the second half about that timeframe?

Dan Hesse

Yes, and so we'd see if you will kind of elevated by our standards because last few years the numbers that I really focus on a lot and I have taken the most pride in is our improvement in customer satisfaction and improvement in churn, and those exactly – so those churn numbers have started coming up in recent quarters and will stay at fairly elevated levels through about half of 2014 and then we're going to see it come back down and we hope over time be lower than they have ever been.

John Hodulik - UBS Securities

Got you. Just back to the voice services, one of the things that impressed me most at the Burlingame presentation was that, as you see these advantages of rolling out Network Vision and then maybe some more from the propagation of 800, when do we get the benefit – first of all, how quickly does that rolled out across the market, and then the HD voice service, what needs to happen both from a network standpoint and maybe from a handset standpoint so that customers get the benefit of the HD voice capability?

Dan Hesse

So on HD voice, right now we have about, or this quarter we'll have about 80 million POPs on an intra-vendor basis where you can in essence if you are in a city where we have HD voice activated if two Sprint customers that each have an HD voice phone. We'll have about 8 million customers this quarter at about if you will a base of postpaid customers, contract customers, at roughly 30 million to give you a feel for what percentage of our base have HD capable devices. By midyear 2014, by the middle of the year, we will have roughly the whole country on inter-OEM or vendor.

So before it was Samsung to Samsung, Samsung market to Samsung market, or Alcatel-Lucent market to Alcatel-Lucent market, they can call each other on HD voice. By the middle of the year, it doesn't matter any Sprint customer could call any other Sprint customer. We will have roughly half of our postpaid base with HD voice capable phones. So in essence, we feel it's pretty close to a ubiquitous service by midyear 2014. And whether it is Burlingame or if you have had other opportunities to hear HD voice, it's dramatically different sound experience than a normal cell phone call.

John Hodulik - UBS Securities

Then lastly on the network standpoint, as we rollout, it sounds like the 800 rollout for LTE is going to be faster than the 2.5. Can you talk a little bit about that rollout schedule and is that going to add speed to the network or is it mostly capacity at this point, as you are working with the 5x5 G Block and this is effectively another 5x5, when can we expect that to be rolled out?

Dan Hesse

The 800 is primarily for coverage and particularly in-building coverage, and if you think of the role of the three different type parts of your spectrum, the 2.5 it's just for really, really fast speed although obviously it's all quick, LTE is quick but it's if you will Spark speeds. The 1.9 is a good combination of high-speed and capacity in coverage, but in buildings it's precious how many walls can you go through, that's where the low-frequency, the former if you will, what was the Nextel or iDEN frequencies giving those freedom and putting LTE on that would give you fast speeds when you are indoors, and so we can have that.

Really AT&T and Verizon are the only two that have the two of that low-frequency spectrum. And we have had it but we've had the Nextel customers on, so now we can put Sprint on it. So it's really going to improve the in-building coverage. So we would expect to have roughly 150 million POPs completed with LTE by the end of next year and be almost complete with the exception of a few border markets where there are a few issues on the voice side by the middle of the year. So, HD voice for coverage is largely done by the middle of 2014 and roughly 150 million POPs of LTE by the end of 2014.

John Hodulik - UBS Securities

Got you. And as it relates to tri-band network, when do you see tri-band phones hitting the market, and obviously this is usually a tough question to ask a carrier, but when do you expect to see an iPhone that utilizes Band 41, can we expect – is China Mobile getting the iPhone, is that sort of a good milestone for just to see a Band 41 iPhone, I mean the 2.5 spectrum?

Dan Hesse

I can't make any comments with respect to Apple or iPhone or when they may or may not do it, but clearly China Mobile, it's a positive sign in terms of our ecosystem because they also have TDD spectrum at about 2.5. So it means more availability in typically lower cost of chips and handsets if you will in our ecosystem. So that's a very good thing. We have launched five devices already that are in the market now phones, plus a couple of mobile hotspots and plus a dongle. So we have roughly eight devices that are out there right now that are Spark enabled that are tri-band.

And now that you have mentioned it, actually we have had a sixth that is going to hit the market by Christmas which I have an early version of which is also an [indiscernible] device, essentially this is in beautiful purple, this is the Samsung Galaxy 4. It's being refreshed for tri-band. And so you will be seeing this hit the stores very quickly, which will be our sixth phone that you can get with Band 41.

John Hodulik - UBS Securities

What kind of speeds are you getting in terms of markets that [indiscernible]?

Dan Hesse

Well, honestly it is still new, I just got it yesterday, I am kind of like the first one off the production line. This is in preproduction of the real production. So you have to wait until you have so many in your stores before you can launch. So I don't know how it works, I got the first one but I did, so I haven't had a chance to test it much and I'm actually using it now. It's fun to pair it, I've got the ear here, so it is paired and so I was actually filling John the way in. I'm driving home last night, I got a call from my wife and it's kind of neat because you going to answer your call, so when you're driving you can see who it is and you can just hit it and you can actually talk like [indiscernible] it's pretty unique. I can actually take a picture of you all just like this and just hit it and – you have to be a little worried if someone's carrying their watch because they can really be taking pictures of your [indiscernible]. Yes exactly, 007, Dick Tracy [indiscernible] if you like. I think I'm inundating myself.

John Hodulik - UBS Securities

So actually just a quick follow-up, from a battery life standpoint, what are you seeing from a tri-band phone, not particularly that one, but just in general from the current line that you have, should it be competitive of what you are seeing?

Dan Hesse

We are expecting actually much better battery life, and the reason is they are all what's called [indiscernible] compatible, and in essence what kills the battery is when the phone is always looking for the best signal or which band it ought to be on and with these devices all that kind of looking and searching optimizing the best experience for the customer's phone in terms of what's going to give them the best coverage and the best speed, is done by the network. So the phone isn't doing that work, it's the network that's making that decision and that saves a lot of battery life. So we expect the Spark phones to have superior battery life to non-Spark phones.

John Hodulik - UBS Securities

So as we sort of look at, I think as we get overview of the Spark strategy and the timetable, when do you believe that Sprint will be sort of far enough along the curve whether it's from a capability standpoint, from a speed standpoint, maybe from go through hump in terms of the trends to be able to begin a marketing push that really highlights the capabilities of network on a sort of maybe national scale?

Dan Hesse

Probably mid-year 2014 in terms of being really well along in terms of our Network Vision build on voice and data and 800 and making more progress on the 2.5. You may see certain messages in certain markets where we are pretty far along like city by city, but on a national level think of mid-2014.

John Hodulik - UBS Securities

Okay, got you. Maybe turning a little bit to spectrum, we would have expected Sprint going back six months or so to participate in the H Block of the upcoming auctions in January. You obviously didn't file to participate in the auctions. Can you talk about the reasons there?

Dan Hesse

As we think of priorities, we have a lot of high-band spectrum and we actually have a very strong position in mid-band spectrum, and I mentioned earlier that we do have what was the Nextel spectrum at 800 which is low-frequency or low band spectrum which is really great for in-building, but it is the last low frequency spectrum that is the weakest in terms of our overall spectrum portfolio. So if we had to prioritize, we would buy more low band spectrum. So we have decided to wait and take a look at more of that when it becomes available.

John Hodulik - UBS Securities

So in terms of auctions, I mean do you believe that you will be in a position to – obviously you're going to be pitted against some competitors with some pretty big balance sheets as of 2013, certainly that's an issue for Sprint, but are you…

Dan Hesse

Our balance sheet is really big if you count that.

John Hodulik - UBS Securities

I think there are some other assets in the broader.

Dan Hesse

No I understand, John.

John Hodulik - UBS Securities

So you feel confident you will be able to compete effectively and maybe potentially get some guarantees from the government that some outside [indiscernible] it will be some spectrum that, from a competitive standpoint that can come to [indiscernible]?

Dan Hesse

It's too early to predict and obviously I can't say at this point whether we'll bid or not and at what level and we don't know what the rules are, but just that we would like to have more low band spectrum.

John Hodulik - UBS Securities

Another way of getting some new capacity which is going to be the real big we're heading down with LightSquared, you called a year ago, would be partnering with a provider that has a lot of spectrum. Are there any potential deals out there, I mean I get asked about Dish all the time whether Sprint would potentially work with Dish and what's your view on that type of relationship?

Dan Hesse

If we can make something from an economic and business perspective work, I mean that's one of the things we considered when we built Network Vision, which is this complete if you will rip and replace an entirely new network is the flexibility because the original Sprint network was not built with an eye of ever using the Clearwire spectrum or the Nextel spectrum and that same kind of flexible architecture allows us to host the spectrum that other carriers would have, or let's say companies like Dish or LightSquared which would have different frequency, on our towers without major work. So that's one of the advantages of our new network, is the ability to do that where there could be potentially win-win for a company like Dish. So we are very open to network sharing or network hosting I should say.

John Hodulik - UBS Securities

Obviously the spectrum and the buildout that you are envisioning is going to get Sprint a lot of capacity. Just given the way you look at the world, I mean how long will Sprint be able to maintain the unlimited pricing that is in the hallmark of the offering most recently?

Dan Hesse

It's not coincidental that we announced our 'unlimited for life' offer days after the closing of the Clearwire transaction. That gives us we believe a very strong spectrum position for some time. Our view is unlimited is so much more than a right plan. It's an aspiration, it's a concept, it's a big idea that's going to apply to a lot more than just your data bucket or voice bucket or text bucket. So we think it's a good if you will position to have. So I can't predict but we felt comfortable about being able to make the 'unlimited for life' guaranty when we got that big block of spectrum.

John Hodulik - UBS Securities

I think T-Mobile I think has shown the effectiveness of a price cut even before its network has really changed dramatically growing I think marginally as a result of these value plans that they have in the market. Is that something that Sprint would consider? I mean the Company is losing subscribers, a lot harder to win those customers back and to keep those customers potentially, especially given the move that AT&T made last week, would Sprint consider sort of intermediate change the pricing to stay competitive especially in the low end where I think you guys are more competitive now?

Dan Hesse

I can't – largely I'm not going to telegraph anything that we may or may not do.

John Hodulik - UBS Securities

But it's something you have considered? Let's move on to the SoftBank relationship. Can you just highlight for us some of the changes that take place in terms of operations at Sprint and simply SoftBank investment?

Dan Hesse

Really what we do with SoftBank is we get together every week on a video call and we get together in terms of the management teams and we get together face-to-face once a month and just get together and share best practices and plans and ideas, and there are a lot of ideas that we have adopted from SoftBank and vice versa, that they have adopted from us. The other thing that SoftBank brings to the table is they are not traditionally as a company even though they run very successfully a wireless carrier in Japan, they are not really a wireless carrier or a telecom company by DNA. They are an Internet company. They have investments in over 1,000 Internet companies. So their view of over the top players and application developers and what have you is different, extremely positive, and I think having not only their relationship but their understanding of that ecosystem is going to be very valuable to us going forward.

John Hodulik - UBS Securities

SoftBank recently acquired a controlling stake in Brightstar. How does that affect your business? Does that give you more flexibility or potentially give you a damage from handset standpoint?

Dan Hesse

Right now it hasn't changed our business at all because we are an independent company that Sprint will make decisions with the best interest of Sprint in mind. So it's too early to say but Brightstar is a very capable company that will obviously consider what services they can provide.

John Hodulik - UBS Securities

Maybe getting back to more of the financials, ARPU growth is decelerating at Sprint and you have one of the highest smartphone penetrations in the U.S. Are there any leverage you can pull to keep ARPU even with the pricing out there which I think puts some logger carriage of allowing to drive ARPU going forward, what can you do to keep ARPU growth positive at Sprint in the postpaid market?

Dan Hesse

Without predicting or providing any guidance for future ARPU, basically what you have is you have two things kind of working in opposite direction. One is increased smartphone penetration and more customers buying things like unlimited plans being kind of a tailwind increasing ARPU. And on the other hand as you sell more customers by services on what's called instalment billing, that decreases ARPU. So you have these two working in opposite directions and so we will see what that mix is going forward.

John Hodulik - UBS Securities

There are a couple of more questions but we can start to poll the audience to see if there's any questions here in the crowd. We have a question here up front.

Question-and-Answer Session

Unidentified Participant

There have been some changes in the marketing organization with the CMO and that kind of thing. Can you talk about why you have made the changes and what you are aiming to achieve by them?

Dan Hesse

I think you're talking about mainly the retirement of Bill Malloy who is leaving basically on March 31 and in essence I called Malloy out of retirement. He was my Chief Marketing Officer in the late 90s when I was the CEO of AT&T Wireless and he lives in Chicago and he has never moved. He got an apartment so he came down to help us out for a few years and stayed longer than he had signed up for. So he was ready to go back home and hang his purse back up, and we have announced Jeff Hallock who is kind of his number two to succeed him as our Chief Marketing Officer, so if you will continuity, a very, very capable person. So it's really that simple. Bill was ready to retire and kind of his number two in the marketing organization succeeding him as CMO.

Unidentified Participant

Can you just talk about your reaction, and I know you have a lot of things that you are going to do after Network Vision more or less completed, but the competitive dynamic continues to get much more intense if you look at T-Mobile, they've done a great job of coming back and particularly some of the recent moves, how do you react to like some of the things that they have done including free international roaming?

Dan Hesse

I give our competitors credit because the market is becoming increasingly competitive and there has been a lot of kind of new ideas and new innovations, including Verizon credit on the shared plans that they came out with a while ago and they have been very effective at that. So it's a very dynamic, very competitive market. What's been kind of frustrating for me is whether you come out with things like 'unlimited for life' or what have you, when you have network issues like I just described it's difficult to get the traction that you normally would and also you want to keep your powder dry to a certain extent to when you really have that strong robust market before you really going to do some things special with the network capability.

So what's been difficult for me as I mentioned earlier is all the progress that we have made in the customer experience because that's a very, very important part of doing well in the marketplace both in gross adds and ensuring that we have to go through this period of time that we have a headwind that our competitors don't. But use the analogy of the story of the three little pigs where the ones that are building the brick house instead of the strong woodhouse, that's going to take longer to get there, but once we do we're going to have this brick house. So, that piece of it is just frustrating for me and we can't build the network that fast, but once we have that behind us, I think [indiscernible].

John Hodulik - UBS Securities

I got a quick follow-up on prepaid. AT&T was here this morning and talked about being a fast growing prepaid company in the U.S. with their quarter results and from a net add standpoint and increasing focus on that especially after the Leap deal is closed, but the big question is, is prepaid still considered a growth area at Sprint, it is still quarter strategy as you are going to be sort of [indiscernible] capability focused most on the postpaid opportunity?

Dan Hesse

I think we have a balanced approach to postpaid, prepaid, wholesale, number of different opportunities in the market, and we have two strong brands which gives us an opportunity, Boost and Virgin, to come up with different offers to address different needs in the segments in the market. And I think that to AT&T's credit, and Verizon as well, in the last couple of years, they have been discovering prepaid more and putting more behind it. So actually the prepaid market is getting more competitive. So it's more difficult to go out and get customers. The one thing I think that is if you will a plus is that generally a prepaid churn has traditionally been very high. As an industry we believe it is going to start to come down a little bit, which I think will help improve the profitability and the economics of prepaid in spite of the competition, but it's a competitive market but it's one we still have focus on.

Unidentified Participant

Yesterday you marketed another $2.5 billion of debt. You talked about the amount of debt on the Company at this point. Can you give us a sense for how funded you are at this point where you need to tap the capital markets again this year, and if not this year, actually I should be talking about 2014, what the size of that tap might need to be?

Dan Hesse

Given the fact that the transaction hasn't closed yet, I just can't comment on debt right now or issuances. I just can't speak about them.

Unidentified Analyst

Dan, a few months back there were some very enlightening details on a proxy filing that was done by yourselves and SoftBank I guess that detailed what looked like internal projections about where Sprint thought it would be going forward. I'm wondering what were those projections and do you guys feel confident with that or was that just something at one point in time that you thought that made sense that may or may not make sense now, or things are better, things are not better, how are we trending?

Dan Hesse

We are not providing any forecasts right now either for fourth quarter or going forward. So you are right, that was an internal document at a particular point in time. It's pretty mature for us to provide any forecasts.

John Hodulik - UBS Securities

Okay I think we have time for one final question, just a broader question, obviously M&A is a big theme here for the conferences in the past couple of days, and how do you view potential consolidation in the U.S. wireless business? Obviously the industry tried to go from four to three in the past, still a lot of talk that maybe eventually Sprint and T-Mobile can be part of some combination, how do you see the prospects for that over time?

Dan Hesse

I believe that the right thing for the industry as I have said before over the long-term, is I think some consolidation would make for a healthier market over the long term, that number one and two are awfully large in terms of their market position and market power, but we have – it's hard for me to speculate. We have a new commission, we have new chairmans, new commissioners at the SEC. So it's difficult for me to opine on the environment.

John Hodulik - UBS Securities

Got you. Okay, thank you all for attending. Dan, thanks for being here.

Dan Hesse

Thank you, John.

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Source: Sprint's CEO Presents at UBS 41st Annual Global Media and Communications Conference (Transcript)
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