Sprint's Dangerous Assumptions
John Zhang • 47 Comments
John Zhang • 47 Comments
Thu, Oct. 20, 4:38 PM
- Sprint (S -2.3%) has priced the debt backed by its wireless spectrum.
- Through three special-purpose subsidiaries, Sprint priced $3.5B in 3.36% senior secured notes in a private transaction.
- The notes are issued at 99.99834% of principal; have an interest-only period followed by quarterly amortizations beginning Dec. 20, 2017; have a weighted average life of about three years and "anticipated repayment date" of Sept. 20, 2021.
- The notes were expected to yield about 3.5% after $30B in orders piled in.
- The subsidiaries will take over about 14% of Sprint's total spectrum holdings (on MHz-pops basis) to serve as collateral for the notes. Rental payments from Sprint will be sufficient to service the notes, it says.
- The central value of the company's spectrum portfolio as of June 30 is estimated at $16.4B.
- Previously: Sprint to raise $3.5B in new spectrum sale/leaseback (Oct. 12 2016)
- Previously: Wells Fargo: Sprint's spectrum alone could be worth $21/share; S +3.4% (Oct. 14 2016)
Thu, Oct. 20, 4:16 AM
- In a novel initiative, Sprint (NYSE:S) is set to issue $3.5B in five-year bonds that are backed by its wireless spectrum, which the telecom operator values at $16.4B.
- Investors seem to like the idea, with orders hitting $30B.
- The first-of-its-kind deal will allow Sprint to slash its borrowing costs. The paper is expected to yield 3.5% and the telecom provider plans to use the money to repay maturing debt. This could cut its financing costs and boost cash flows by an estimated $200M a year.
- The debt is receiving investment grade status from Fitch and Moody’s despite Sprint itself being rated as junk.
- ETFs: LQD, VCIT, CORP, CIU, CSI, CRED, ITR, QLTA, COBO, FCOR, CBND, SKOR, IGIH, WFIG
Tue, Oct. 18, 8:37 AM
- The company sees FQ2 net operating revenue of $.825B, up 3% Y/Y, and wireless net operating revenue of $7.85B up nearly 5%.
- Net loss of $142M vs. $585M a year ago, with this quarter's result boosted by a non-cash gain of $218M.
- Operating income of $622M vs. a $2M loss a year ago, again boosted by that non-cash gain ($354M pretax).
- Adjusted EBITDA of $2.35B up 17% Y/Y.
- Adjusted free cash flow of $707M vs. a negative $100M a year ago.
- Total Sprint platform net additions of 740K during quarter, including postpaid net additions of 344K, prepaid net losses of 427K, and wholesale and affiliate net additions of 823K.
- Total postpaid churn of 1.52% slipped two basis points, and postpaid phone churn of 1.37% was lowest in company history.
- S +0.7% premarket
Fri, Oct. 14, 12:56 PM
- Echoing a chorus of frustrated investors, Wells Fargo's Jennifer Fritsche figures that Sprint (NYSE:S) is worth $21/share in spectrum value alone.
- That's after accounting for $32B in debt. Shares are up 3.4% to $7 and the stock has hit a two-year high today in response.
- Crunching numbers on Sprint's third and latest sale/leaseback on spectrum, Fritsche says the price tag it puts on the airwaves is higher than the Street figured: If 14% of the spectrum is worth $16.4B, then total value comes to about $117B.
- The spectrum deal lowers average cost of debt and should help cash flow in the short term, she says. “Once Sprint gets beyond the December payment ($2.3B due in 12/2016) its next three maturities are coupons which are between 8 3/8% and 9 1/8% ... Therefore, this deal could be immediately be accretive on a FCF basis, as Sprint should be able to significantly lower its interest expense and put its Net Operating Losses (NOLs) to work.”
- She also has raised estimates for postpaid phone additions to 275,000 from a previous 200,000, vs. consensus expectations for 230,000.
Wed, Oct. 12, 9:10 AM
- Sprint (NYSE:S) is up 1.2% premarket following a new plan to raise billions from a spectrum sale/leaseback.
- For the third time, the company will mortgage spectrum -- about 14% of its airwaves, an amount the company estimates as worth $16.4B. It won't borrow all that at first, though, looking to raise about $3.5B.
- That would provide needed cash in its current crunch. Negative cash flow came to $3.17B for the fiscal year ended in March.
- Through three special-purpose subsidiaries, Sprint will use a portfolio of FCC licenses and some third-party leases (in 2.5 GHz and 1.9 GHz) in a sale and long-term leaseback. The spectrum in question is used in about 77% of Sprint's 2.5 GHz enabled sites, and in about 33% of its 1.9 GHz sites.
- It expects the notes to be rated investment grade by Moody's and Fitch.
Tue, Oct. 11, 1:31 PM
- Sprint (S -0.7%) is starting a multi-year initiative, the 1Million Project, to give free mobile devices and high-speed wireless Internet to 1M low-income high-school students.
- The project will work through its Sprint Foundation. It's designed to help eliminate the "homework gap," now that high school homework (and preparing for college) increasingly demands high-speed Internet access, and lower-income students often lack it at home.
- The company will work with partner nonprofits to identify students wih insufficient access at home and provide differing device solutions for up to four years. "Each student may receive either a free smartphone, tablet, laptop or hotspot device and 3GB of high-speed LTE data per month," Sprint says; overages will hit unlimited data at 2G speeds.
Wed, Oct. 5, 11:05 AM
- An outage that hit a number of telecoms yesterday was tied to a technical issue at Level 3 Communications (LVLT -0.3%).
- A configuration error caused downtime for several of its customers, the company acknowledged, but it didn't say which customers or for how long.
- Meanwhile, reports had circulated about outages hitting the big four wireless providers (T, VZ, TMUS, S) as well as Comcast (NASDAQ:CMCSA). Problems lasted an hour or more, though Level 3 said issues were resolved around 11:30 a.m.
Tue, Sep. 20, 2:57 PM
- With wireless subscription growth slowing overall, the "try harder" guys each say they're stealing each other's customers.
- T-Mobile (TMUS -2.8%) and Sprint (S -5.9%) said today they're taking subscribers from their small competitor, and thus presenting a tougher challenge to industry leaders AT&T and Verizon.
- They can't both be 100% right, though time may tell. T-Mobile provided a preliminary update, while Sprint will release official results at the end of the quarter.
- In its update, T-Mobile said it added about 753,000 branded postpaid phone subs in Q3 so far -- pacing below last year's Q3 gain of 1.1M with just a couple of weeks left, but ahead of Q2 in branded postpaid phone and prepaid net adds.
- To be fair, T-Mobile (a standout in industry subscriber growth in recent quarters) says it's taking customers from everyone this quarter: 250,000 postpaid phone and prepaid net customer adds from Verizon (VZ +0.3%), and 400,000 from AT&T (T -0.1%), to go along with 300,000 from Sprint.
- T-Mobile will provide a business update in a presentation to Goldman Sachs' Communacopia Conference Thursday at 10:30 a.m. ET.
- Previously: Sprint's Claure: All employees tied to turnaround; Five-year plan on track (Sep. 20 2016)
Tue, Sep. 20, 11:15 AM
- All of Sprint's (S -0.5%) employees have an incentive package tied to the company's turnaround, says CEO Marcelo Claure, and the packages are just like his, he says: no equity until the stock price improves to $8 (it's currently at $6.62).
- Speaking at Goldman Sachs' Communacopia conference, Claure was asked how recovery efforts are proceeding and he discussed recent successes, the company's progress on network investment and efforts to cut churn.
- The last few quarters have been great for churn, Claure says. There's been uncertainty among customers about Sprint in recent years, but "Once they come, they stay -- and they like it." He added that the company's "iPhone Forever" plan (offering customers a chance to upgrade to the newest iPhone when it's available) is what they internally call a "zero-churn program," designed to get customers upgraded before the end of their contract.
- "Yes, we're going to increase capex," Claure says, but "never to the tune of what's been done in the past." Technology changes have changed up the investment path, he says. "Don't over-invest; be smart on how we invest our money." Network investment gains come not just from small cells but in macro cells and femtocells as well.
- Claure described watching Verizon commercials as a child: "I don't remember them trying to hit somebody else the way they're trying to hit us," Claure says of Verizon marketing against Sprint now. Network gains are paying off: "Yes, Sprint is not better than Verizon yet, but we are the comeback story," and better than Verizon in some markets, he says.
- Sprint shares pushed close to a 52-week high just before Claure spoke, but toward the end of his session the stock dipped to a decline of 0.5%. Sprint's up 84% YTD.
Tue, Sep. 13, 9:50 AM
- T-Mobile (TMUS -1%) has paced to its new smartphone sales record with the initial days of preordering for the iPhone 7 and iPhone 7 Plus.
- The company didn't release total sales figures but said the phone set a single-day record for any smartphone on Friday, and over its first four days, the pre-orders were about four times more than the next most popular iPhone.
- Pre-orders began Sept. 9, and the phones will be available in T-Mobile stores Friday. Prepaid customers on MetroPCS will be able to get the new iPhones starting Sept. 23.
- Sprint (S -1.5%), meanwhile, said that in its first three days, preorders of the iPhone 7 and Plus are up more than 375% over last year.
Fri, Sep. 9, 5:57 PM
- "Wireless clouds are starting to gather," UBS says in a report noting that historically high margins for U.S. wireless carriers may have peaked, with negative impact coming as soon as next year.
- U.S. wireless firms have posted record profits for three years as carriers -- AT&T (T -3.6%), Verizon (VZ -3.3%), T-Mobile (TMUS -4.4%) and Sprint (S -2.2%) -- outpaced other global regions in average revenue per user, churn, EBITDA and margins.
- But three factors will conspire to depress EBITDA growth, UBS says: the decline of the margin accounting boost from the switch to equipment installment pricing; rising churn as phone replacement cycles shorten; and falling ARPU as carriers are forced to keep cutting data costs. "While it's hard to gauge the impact of recent price changes on ARPU, one thing is for sure, carriers are providing more value for the same price, lowering the inherent yield of additional data usage.”
- The firm's top pick in the sector is still T-Mobile, based on customer acquisition, but it notes that AT&T's diversification and bundling via DirecTV puts it in a good position.
Mon, Aug. 29, 2:57 PM
- T-Mobile (TMUS +2%) earned an upgrade to Outperform from Wells Fargo, with its "primary focus" on cash flow.
- The carrier is approaching a "hockey stick" move in free cash flow generation, analyst Jennifer Fritzsche says, with no ill effect from spectrum spending in FCC auctions.
- Wells has a $54 price target on T-Mobile, implying 15% upside from today's price.
- She sees $1B in free cash flow in fiscal 2016, followed by $2.6B in F2017 and $3.7B in F2018. That's on a base assumption the company spends $7B on spectrum, but in her model even if the company spends $8.3B, it would still mean almost $3/share in FCF in 2017.
- Fritzsche's top pick in the sector is still Sprint ("We still can give a longer catalyst list for Sprint"), though the firm expects both Sprint (S +1.5%) and T-Mobile stock to do well based on different metrics.
Mon, Aug. 29, 11:14 AM
- Buffeted by some criticism over its all-unlimited data move, T-Mobile (TMUS +1.8%) has issued changes to the new T-Mobile One plans with T-Mobile One Plus, with the plans launching five days sooner, this Thursday.
- Following criticism of its tethering speed, T-Mobile says it's upgraded hotspot speed on its standard plan to 3G, from a planned 2G. In addition, while mainline customers will get unlimited video "optimized" at 480p, the company will offer HD "day passes" for $3/day, allowing customers to stream unlimited HD video in a 24-hour period. Those passes will arrive in October.
- Targeted at its heavier-use customers, the T-Mobile One Plus plans will offer unlimited 4G LTE hotspot data, unlimited HD day passes, and double the speed when abroad (3G), for $25 more per line (over the $70/month for the one-line plan).
- The quick tweaks are part of T-Mobile's "Shut up and Listen" approach, says CEO John Legere -- "I’ve said it before and I’ll say it again – the best way to run your company is to shut up, listen to your customers, and then do what they say!" -- but no doubt T-Mobile was also giving a listen to Sprint (S +0.4%), which had created a high-end data-hungry version of its unlimited plan on Friday.
Fri, Aug. 26, 2:51 PM
- With wireless providers re-boarding a bandwagon bound for unlimited data, Sprint (S -1.4%) is already adding to its most recent effort (and giving a test to its network strength) with a high-end alternative.
- The carrier is rolling out "Unlimited Freedom Premium," a variation of last week's "Unlimited Freedom" plan targeted at data-hungry consumers.
- The plan offers unlimited HD (up to 1080p+) streaming videos, HD music streaming at up to 1.5 Mbps and gaming streaming at up to 8 Mbps, for $80/month for one line (or $140/month for two).
- Sprint's offering the options on a trial basis through October for all who sign up to last week's Unlimited Freedom plan -- which offers unlimited talk, text and (throttled) data for $60/month.
Wed, Aug. 24, 7:50 PM
- The first benchmark has been hit for closing the FCC's broadcast incentive spectrum auction, but the second benchmark will be a harder task.
- Bids have reached $16.3B after 15 rounds in the forward auction, which began last week as a second phase following an earlier reverse auction.
- That's exceeded the $15.9B total the FCC set as the first benchmark for closing -- but the other benchmark is $88.38B, which the FCC needs to pay broadcasters who set that price in the reverse auction as well as cover costs.
- There's still time, particularly with the price on the blocks rising by 5% a day, John Eggerton notes. But falling short of the $88.38B could mean reopening reverse auction rounds and a completion delayed into next year.
- Spectrum players: VZ, T, TMUS, S, DISH, SBGI, EVC, CMCSA, CHTR, NXST, CBS, MEG
Thu, Aug. 18, 10:44 AM
- With T-Mobile (TMUS +0.7%) declaring an "end to data plans" in its new unlimited-plan push today, Sprint (NYSE:S) is hitting back with an "Unlimited Freedom" plan: Unlimited talk, text and data for $60/month, $10 cheaper than the one-line price at T-Mobile.
- Sprint's new unlimited plan costs $100/month for two lines (vs. $120 for the two lines in T-Mobile's new plan).
- Unveiled in a "tweetstorm" from Sprint chief Marcelo Claure, the plan nominally costs the same for four lines as T-Mobile's ($160). Also like T-Mobile, it promises "optimization" for streaming video, gaming and music -- the notorious data hogs of modern mobile phone usage.
- Sprint was said to be working on a revamp of its unlimited-data offering when news came of a surprise conference call from T-Mobile this morning, at which it introduced its all-in plan.
- Naturally, the dueling plans were accompanied by Twitter sniping between Sprint's Claure and T-Mobile's combative CEO John Legere. "Sounds like a crappy plan to me," Claure tweeted in response to T-Mobile's news, while Legere replied "It takes 5 mins to copy-paste... and a lot longer to build the right network." Food for thought as observers mull whether a peaceful merger is possible.