Sprint's Dangerous Assumptions
John Zhang • 47 Comments
John Zhang • 47 Comments
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.
Wed, Aug. 17, 1:32 PM
- Detailing its report on new merger chatter around Sprint (S -1.5%) and T-Mobile (TMUS +0.5%), Bloomberg notes that Masayoshi Son -- the mogul at the head of SoftBank (OTCPK:SFTBY -2.3%) who abandoned a merger bid before -- will likely try the combination again if he thinks a new head of the FCC is amenable.
- That agency head holds key power, with the threat of putting such a proposed deal into an administrative hearing, which would postpone action indefinitely. A similar threat caused Comcast to drop its proposed takeover of Time Warner Cable. Son has indicated he would legally challenge any Justice Dept. opposition.
- Shares of Sprint and T-Mobile made positive moves of 3% and 2.5% respectively in the span of a few minutes before pulling back.
- Son could pursue the argument that Sprint will never be a legitimate fourth competitor in the market alone, but that may not fly, says Public Knowledge's Gene Kimmelman. “You would need to see a pretty significant reversal of fortunes across both companies -- Sprint and T-Mobile -- for the antitrust enforcers to change their views ... You’d have to see a clear demonstration of a company in jeopardy.”
- A Trump administration, though, could mean "a whole new ball game" with companies like Sprint rolling the dice, Kimmelman says.
- “The rule of thumb is that Democratic administrations will allow an industry to consolidate down to four players, and Republicans will let an industry go down to three,” says analyst Roger Entner. “Masa has to hope that the next president’s name is Donald."
- Talks between the two companies are forbidden as of now, with the FCC's broadcast incentive spectrum auction going on (and looking more likely to run into 2017).
Wed, Aug. 17, 12:44 PM
- Sprint (NYSE:S), down nearly 3% on the day, made a midday spike back to the flat line on yet another resurgence of merger rumors -- though, just like that, the spike is gone and Sprint is off 1.8% again.
- Bloomberg is saying that Masayoshi Son of Sprint owner SoftBank (OTCPK:SFTBY) is still "holding out hope" to combine Sprint with T-Mobile (TMUS -0.2%) -- which also spiked into positive ground before an immediate pullback.
- Conventional wisdom has it that the previous outbreaks of Sprint/T-Mobile rumors were put to rest with no possibility of a combination at least until a new U.S. presidential administration.
Tue, Aug. 16, 6:29 PM
- Goldman Sachs has reiterated its Neutral rating on Sprint (S -1.6%) but has a somewhat more positive stance on its bonds, which have been outperformed by its equity.
- Shares are up 33% since the company beat expectations in its fiscal Q1 earnings and are up 67% YTD, and the company's fundamentals back up those moves, says Goldman's John Marshall.
- But the carrier is unlikely to generate significant free cash flow next year even if it does keep growing EBITDA: “The key reason is that Sprint plans on materially densifying its wireless network, meaning it intends to deploy tens of thousands of ‘small cells’ in order to boost capacity using its high frequency 2.5 GHz spectrum licenses.”
- But until the recent outperformance, Sprint's stocks and bonds tended to move in line. The move in its five-year credit-default swap spread has been only one-fourth the equity move, he says, taking a Constructive stance on the company's credit.
Tue, Aug. 16, 10:26 AM
- A major FCC auction of wireless airwaves just entered its second phase.
- The forward auction in the FCC's broadcast incentive spectrum sale has begun, with Comcast (CMCSA -0.1%) and Dish Network (DISH -0.8%) among those joining the usual spectrum suspects: AT&T (T -0.9%), Verizon (VZ -0.6%), and T-Mobile (TMUS +0.1%), but not Sprint (S +0.4%), which is sitting this out. Of about 100 parties eligible to bid, 62 have been certified by the FCC.
- That follows the reverse auction, where broadcasters set up blocks of spectrum they'll be selling to be reallocated for wireless carrier use.
- This phase represents a challenge, now that the reverse auction's price has been set at $86.4B. With costs, the FCC needs to raise $88B; if the forward auction doesn't reach that height, the reverse auction will need to be reopened to lower its price, which would also cut spectrum sold -- and likely drag the entire process into 2017.
- Broadcast players: SBGI, EVC, NXST, CBS, MEG
- Previously: Next phase of FCC spectrum auction likely to start mid-July (Jul. 01 2016)
Thu, Aug. 11, 7:29 PM
- AT&T (T +0.4%) is joining prepaid rivals in bringing family-plan options to its pay-ahead service.
- The company will offer discounted multi-line plans on its GoPhone line, for customers who buy its $45/month or $60/month plans.
- Customers can receive a $5/month discount on additional lines, up to $20/month of discounts (five lines total). The $45 plan already offers unlimited talk/text and 3 GB of high-speed data, while the $60 plan has 6 GB of data instead.
- The new discounts bring AT&T more in line with multi-line prepaid plans offered by Boost Mobile (S -1%) and MetroPCS (TMUS -0.8%).
Wed, Aug. 10, 2:35 PM
- In another victory for broadband Internet providers, a federal appeals court ruled in favor of two states seeking to set limits on municipal broadband networks.
- The FCC had sought to pre-empt state laws that put onerous restrictions on cities' rights to build and expand their own high-speed networks -- which can reduce demand from private-sector Internet service providers.
- The appeals court said the FCC couldn't block Tennessee and North Carolina from restricting cities that were seeking to expand their muni networks.
- Updated 2:45 p.m.: FCC Chairman Tom Wheeler in a statement: "The efforts of communities wanting better broadband should not be thwarted by the political power of those who, by protecting their monopoly, have failed to deliver acceptable service at an acceptable price. The FCC’s mandate is to make sure that Americans have access to the best possible broadband."
- U.S. ISPs/carriers: VZ, T, CMCSA, OTCPK:ATCEY, S, TMUS, WIN, CTL, FTR, CHTR, CCOI
Mon, Aug. 8, 2:01 PM
- Swelling demand for a new iPhone is likely not only to boost Apple, but also to send subscribers to T-Mobile (TMUS -0.2%) and Sprint (S +0.6%), according to a survey from New Street Research.
- Some 10% of the firm's respondents suggest they plan to switch carriers in the next few months, suggesting industry churn of about 2.5% in Q4, it said.
- And switching activity benefits the "share takers" vs. the share losers -- AT&T (T -0.6%) and Verizon (VZ -0.1%).
- Those two sector leaders have been focusing on more profitable customers, whereas Sprint and T-Mobile are trying to take customer share from the big two.
- Some 22% of respondents said they would buy the new iPhone upon release or within the next few months; of those 5% plan to switch carriers in doing so. And 25% of respondents are specifically waiting for a new iPhone to upgrade their device.