Sprint's (S) Management Presents at Barclays Global Technology Conference (Transcript)

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Sprint Corporation (NYSE:S) Barclays Global Technology Conference December 7, 2016 5:30 PM ET

Executives

John Saw - Chief Technology Officer

Analysts

Amir Rozwadowski - Barclays Global Technology

Amir Rozwadowski

Good afternoon folks. My name is Amir Rozwadowski and I Head up the U.S. Telecom and Communications Infrastructure Research Practice here at Barclays. One of the debates that we often hear among investors and industry followers is, what is the right recipe for network success and how do service providers utilize the unique ingredients that they have at their disposal in order to meet what many see as an insatiable level of demand for connectivity?

Our next speaker has been charged with basically figuring that out for one of the country’s largest carriers, The Sprint. So, it is a great pleasure that we have with us today, Sprint’s CTO, Dr. John Saw. Dr. Saw, thank you so much for taking the time today.

John Saw

Thank you. Pleasure to be here.

Amir Rozwadowski

So, Dr. Saw clearly there has been a lot of developments over the last few years in the arena of Telecom Networks, so obviously very happy to have you with us today. I was wondering if we could potentially start out with an update on Sprint’s network status. Over the last 12 to 24 months it does seem as though the pace at which third party firms have noted this improved quality on the network is gaining momentum, perhaps that’s a good place to start and maybe to what the oldest improvement tool.

John Saw

Yeah, I think you are absolutely right on that. And if you look at any of the third party benchmarks whether it is Nielsen, RootMetrics, Ookla, J.D. Powers, they all pointed the same thing, the Sprint Network has made significant improvements and I am extremely proud of the engineering team, the network team for the work that they are putting the last two years.

I think it comes down to, you know once we finished the network vision project there was a strong intent focus on the quality of the network. In fact, we actually reorganized our sales about two years ago on a network team to actually put more focus in the regions, so that every sell-side that Sprint has is accounted for. And spend a lot of time optimizing, and optimizing, and optimizing the network to make sure that it is performing at best several levels.

I think you can see the fruits of our labor in the last few years when the third party bench marks come in and test the networks. On top of this, we have also added some new capabilities. In the last few years, we added the 2.5 spectrum that we acquired from Clearwire. We added 800 megahertz for indoor performance and it shows. It moved the needle in terms of our customer experience especially with data speeds. So, all these things helps.

I think it made us a lot more comparative today relative to be at our three major carriers and we have a much better network today.

Amir Rozwadowski

You mentioned a number of the - to the point I made earlier, ingredients that you guys had focused on, is there any way to sort of parse out the benefits that came from Network Vision versus some identification versus perhaps the 2.5 or the re-forming of the 800, I mean just trying to understand where those benefits have originated from?

John Saw

Sure. Let me walk you through chronologically how all that got spoke together, and this is part of our network transformation or multi program. Network Vision is the foundation from which we have built on. It was a challenging project, but what we end up getting at the end of the Network Vision project is a multi-modal platform that allows us to integrate seamlessly all the spectrum benefits that we have. And once that was completed, it allow us to add new capabilities.

For instance, soon after that we added the 2.5 gigahertz spectrum fairly, readily to that platform, and then we also added the 800 megahertz spectrum that we have rebound from the IDN technology days to give us better end of performance. And then on top of that, we have added new capabilities to, for instance the 2.5 band on our new LTE plus network, we added carrier aggregation last year, through channel carrier aggregation over 40 megahertz, and then recently we have started rolling out three channel carrier aggregation, which is over 60 megahertz.

So, if you look at the time sequence, building Network Vision, use it as a foundation from which we can innovate, add new capabilities like carrier aggregation and 2.5, and then to sort of wrap it all up we have also and back on identification and optimization project whereby, in order to continuously improve the performance of network we will identify the Network Vision sites with other types of structures using straight furniture and small cells to sort for coverage holes or areas where we need additional capacity.

So, the identification project just got kicked off recently and allows us to actually input more signals closer to our customer and to compliment what we have done with the Network Vision sites.

Amir Rozwadowski

That’s very helpful. You bring up the 2.5 I feel like over the last couple of years there has been debate as to whether or not to 2.5 is a one liable ecosystem in order to provide the type of services that you folks want to provide in the U.S. and the second whether or not it’s propagation qualities or perhaps even the use of TDB can create a competitive solution. Can you address some of these?

John Saw

Yeah. I think the debate has pretty much largely has been muted lately. I mean it was a rating debate a few years ago, but high band spectrum is going to be the future, and we all - when they say they are deploying 2.5 is difficult, virtually we try to build 5G networks, but we are talking about millimeter-wave band radios. Right, 2.5 is like the low band beachfront property for 5G. So, as a industry we all need to get used to learning how to deploy high-band spectrum.

Now the Sprint engineers are very used to it because we had to deploy 2.5 efficiently and if we can work - making sure it works well. And we also used a lot of millimeter-wave radios for backhaul as well. So a lot of good experience there. Coming to the status of 2.5 it is brilliant. More than 70% of our LTE pops today is covered with 2.5. So, it is no longer just like a hot zone technology. And we actually carry more LTE tonnage on our 2.5 band than any other spectrum bands we have.

So that shift happened a few months ago, earlier this year. So, more and more we are adding 2.5, it is a strategic capability and a strategic asset for us that we’re going to continue to leverage and 2.5 ecosystem today at CBB, LTE and Band 41 is one of the world's largest LTE systems. It is also used in Asia, in particular in China. And as an industry, as a Band 41 industry I think we have shipped more than 500 or 600 million phones with Band 41 in them. So it is very large ecosystem.

Amir Rozwadowski

So it seems though some of the ecosystem question has been answered in terms of the size and the scope, it seems though from a deployment perspective you folks have clearly made a concerted effort in terms of the deployment, how easy is it to upgrade capacity here? I mean, I think about Sprint’s spectrum portfolio and arguably your primary three bands, right? And that’s been the focus, other operators may have a broader array of brands available for improving capacity, how should I think about your capabilities and your ability to light up that spectrum to its full capability?

John Saw

Yeah, I think when we built the 2.5 editions to those Network Vision sites, I think we had the foresight to put in the hardware capabilities that future proves us quite a bit. Here is an example. We still are the only carrier that has deployed eight transmit eight receivers on our base stations for 2.5 in the United States. And with AT and our capability, we have the flexibility to enable capabilities like MIMO, basically small antenna capabilities that you improve the technology, we also roll out the informing, right. All those are software enhancements that we brought in recently that was based on the hardware that was deployed before in 2014.

So that allows me to actually without spending a lot of capital to enable new capabilities based on hardware that was deployed two years ago, another example is carrier aggregation. Our radios that we have deployed, is capable of supporting a lot of carriers, a lot of channels. We just had to wait for the software to be available. So, last year we deployed two channel carrier aggregation and that same hardware that we have deployed allows us to add even more spectrum. So, by rolling a three channel carrier aggregation today.

So when you have a lot of spectrum as a carrier you have the flexibility to actually keep adding capacity via adding more spectrum. If you don't have that then you have to result to more expensive needs, which means you have to do sell slips or do more sell sites, small cells in order to meet the capacity demand of our customers. In the case of Sprint, with our ample spectrum capacity we can add capacity all the day along at sell sites.

Amir Rozwadowski

So, I guess in thinking about that what do you think is your relative cost for adding capacity compared to one of your peers at this point?

John Saw

I think anytime you are able to add capacity via a network upgrade or software upgrade that doesn't require billing additional sites that couldn't be significantly cheaper. It’s 5 to 10 X depending on the cost of building a new cell site and the type of cell site you are building. So you'll be a lot faster, if we can add capacity overnight through our network operations centre, you don't have to wait to get cell sites built. So, significantly faster if you have that flexibility and if you have to asset.

Amir Rozwadowski

So given that you folks have the asset and you don’t seem has though the ecosystem is in place and you have the ability to improve that capacity, how should we think about the capacity of Sprint's network over the next 12 to 24 months?

John Saw

I feel really good about our ability to deploy capacity. Again the most important tool we have as our asset is spectrum. And as you see the growth in tonnage per user see the - more and more applications moving to mobile, you need to feed the beast and spectrum is the raw material you need. Otherwise we will have to revert to sales slips and otherwise of managing the network. So, in the next 12 to 18 months we are in a very good position. We are going to continue to add more 2.5 capabilities out there. We're going to leverage all different types of tools that we have and it’s all focused on getting more and more spectrum out there for the use and benefits of our customers.

Amir Rozwadowski

So, I think one of the debates that investors have at least had is looking at the spending that Sprint’s doing on a near-term basis relative to some of the network improvement that we have seen, and questions have ranged from whether or not Sprint is holding back some of the spending in the near term and that may require additional spending in the more mid-to-longer term. So, how do you think about those types of questions?

John Saw

Yes. So one interesting fact I would say. If you look at the last three years, Sprint has spent more CapEx per revenue, per percentage of revenue than the other carriers. In the last three years, we are number two in terms of CapEx for retail subs that we have expanded. So, we have not been shy in spending CapEx wherein it makes sense. The latest last few quarters where our pace of spend is lower, it is a reflection on the , basically we are looking at densifying our networks and as we get more small cells and polls permit we will start investing even more. But take a look at the network performance, in the last few quarters when our capital spend has been lower than many analysts were expecting, our network is performing at best several levels. In fact you look at it quarter-over-quarter, if you look at metric scores as an example, we have won more awards recently then we did just the last time they were in town, measuring the markets.

So, the network performance has been improving to best ever levels. I think if anything that one point that we are making is that you don't, for a lot of network improvements you don't have to throw a lot of money at it. Especially in the case of Sprint, when in the years where we have to spent the CapEx we have actually put in capabilities in our hardware like the radios I talked about that allows us now to add capacity with software that doesn't cost a lot of capital money.

Amir Rozwadowski

That’s very helpful. So, I was wondering if we could shift gears here a little bit towards the densification, initially. As you know, I feel like small cells have clearly been an increasing focus for the broader industry, can you provide us with some color on how small cells are expected to play a role in your network improvement strategy and where do you stand with respect to the utilization of small cells relative to macro site investment along those lines.

John Saw

Small cells is going to be strategic for us. It is one of the key tools that we have and the reason being the small cells allow us to be very surgical in terms of where we expand capacity and coverage for our customers. We know where the customer pinpoints are and small cells in the most efficient way for us to address those areas where performance needs to be improved. Small cells is also the future and the foundational for 5G for industry. You're not going to put a millimeter-wave radios on towers. We got the [indiscernible] limitations, right.

In order to benefit from the large bandwidth high-speed low latency you need small cells and we're just getting started as with the other carriers because you need to densify your network. So, I - we all see the opportunity where small cells are going to complement the macro types we already have and they both have to grow hand-in-hand. So, it’s going to be a key player not just for Sprint, for the industry as well, and this is why we have been looking as an industry with the SEC with the CTIA to work with the local municipalities to enable us to get more strict furniture out there, so that we have more - we have a faster rate of getting attachments out there. All with an eye towards building a future 5G network, absolutely a lot more small cells then we have to that.

Amir Rozwadowski

Is there anything different about your approach to small cells that we haven’t seen from an industry perspective?

John Saw

Yeah. There are, you know off the top of my head I can think of two or three of them. One of them, the big one is obviously coming back to the most important asset that I have that not many people have is because of the amount of spectrum I have, our small cells will be operating on dedicated spectrum that is not being shed or used with the macro sites. I don’t think many carriers can afford to do that, but at Sprint we can and that is a good thing to do because you don’t have to worry about interference. You don’t have to worry about expanding a lot of energy and resources and trying to mitigate against interference.

We just put up 200 small cells in Manhattan and it performs fabulously better than what we expected, because the small cells is operating on its own spectrum band. It’s dedicated spectrum, so doesn’t get any interference from anyone else. The macro sites doesn’t even know it is there until the network does lot balancing across the small cells and the macro cells. So that is one big difference and how we will deploy our small cells.

Another difference that I can think of is the way we put the small cells and the way we backhaul the small cells. As you're probably aware, one of the Achilles heels of small cells is cost of backhaul. It’s very expensive to run that fiber, a fiber to polls, especially when the economics of serving a very small population of users with the small cell. So, we have devised ways either ways of getting backhaul for the small cells. We have a lot of good experience while at the backhaul in the past, more than 20,000 links today that users meet them at the ways, and sent them in the way for the backhaul. So we intend to leverage that for small cells.

We are looking at using our own spectrum for small cells backhaul, as well. That gives us the flexibility. Flexibility in cost, flexibility in timing and flexibility in terms of where we actually can locate a small cell that is not tied to within a few hundred feet of a fiber hub. So, those are the sum of two big differences, the third one is because we have – we’re deploying higher band spectrum for small cells, as a form factor they are a lot smaller. So, it’s more pleasing to the eye, sort of aesthetics when you try to put a small cell on the utility pole or a light pole.

Amir Rozwadowski

You know with that in mind given the fact that you are using a differentiated strategy, could you discuss may be some of the challenges that you’ve encountered with the initial standpoint of the densification initiative and how you expect to alleviate some of the challenges going forward as you ramp the densification initiatives?

John Saw

I don't think there are any surprises in [indiscernible] moments that we have seen so for. I think the industry is well aware that when you want to deploy a lot of small cells you have to work with a lot of people and we are very pleased with the progress we have made I think at our last earnings call we did say that we have seen a doubling in the number of permits we got quarter-over-quarter and we intend to - we are fully expecting to see that sort of progress. Some municipalities are a lot easier to work with than others.

Some of them would require little bit more patience, but a key principal Amir that we have adopted when they are talking about working on small cells is, that we need to be patient working with the municipality and the local authorities. We want to be respectful of their needs and making sure that whatever we propose to put out as an attachment that it also is okay with them. So, in some cases, in some municipalities we may have to be a little bit more patient, but so far we’re pleased with the progress we are making.

Amir Rozwadowski

And are some of those lessons been internalized, in terms of your ability to replicate it easier development going forward?

John Saw

Absolutely. Yes.

Amir Rozwadowski

Okay.

John Saw

And we have looked at what is the best [indiscernible] to do it, you know to build those small cells, how do we backhaul it, do we need so many boxes as an attachment, you know one big advantage for you, if we tell the municipalities we don't have trench through a pole it is so much easier for them to say yes, and a lot of our solutions don't require like I said before a wire backhaul.

Amir Rozwadowski

So if we put all these pieces together, you know sort of the ability to upgrade the network from the software perspective in a more efficient manner the size and scope of your 2.5 band and your ability to light that up and sort of improved process for densification, based on some of the learning’s that you’ve learned, you’ve immediately learned from your stand point, how do we think about the pace and capability of improving the network quality going forward? And then translating that to used cases for customers.

John Saw

Well I think if you look at the last two years, I think the network has improved significantly. So, we're not waiting for some big event or a silver bullet. We have been adding new capabilities to our network carrier aggregation being the latest one. And I think over time as we add more densification as we continue to optimize the network, I think what it means for our customers is that they are going to have a network with the highest capacity that anyone can offer because again based on the spectrum strength that we bring.

If you look at the spectrum that we have as an asset at 2.5, we help build and grow it to the longer largest echo system for LTE today. We continue to make progress on that band. Actually, the late breaking news just less than 24 hours ago at the three 3GPP meeting in Indiana there is an abundant to the band 41 standard that allows us to improve the uplink for band 41. What that means for our customers is that they are going to enjoy more 2.5 performance capability over the larger supplier area.

We are going to have more to say about that in the next week or so, but that’s one good example of things that we are doing to continue to improve the network, continue to leverage our spectrum to bring even more capacity to our customers to meet their needs.

Amir Rozwadowski

And then how do we think about sort of the opportunities that to run the network more efficiently given the tools that you have at your disposal? One of the things that Sprint has done from an operational standpoint over the last several years is sort of synergize the network strategy in order to drive down the cost of running the network. I’m just trying to assess sort of how we can think about that going forward?

John Saw

I think that it is certainly a ongoing process improvement that we're putting in place to run that network more efficiently. Certainly simplifying the number of technologies and focusing more on just LTE’s going through helping a big way. If you at Sprint's history in the past, we have a lot of technologies that we have to manage, IDN, we had WiMAX, EVDO and most recently LTE, but basically consolidating our capability and technology and sit on the mainstream where the standards are in terms of LTE and looking at 5G building on our LTE plus network to focus on LTE. I think that just simplifying our guidance is going to help us have less variables to worry about, but focus more on improving the experience. We have worked on simplifying our core networks as an example although we are looking at SDN capabilities, software defined networks and virtualization of the time as we grow, that is going to help us simply the way we manage it and the cost of running that network as well.

Amir Rozwadowski

That’s very helpful. I guess the last question from my end, I know you're chairman has expressed a lack of desire to keep the secrets as to where or how the network is going to improve over the next couple of years, but based on the discussion it doesn't seem as though that a lot of the techniques that you are using are new in that, it is not as though you are making a bet on a new technology or a new means by which to improve the network as may have been done in the past with WiMAX and so forth, more optimizing the resources you have at your disposal and using those best-in-class technology to exploit those for the marketplace, is that a…?

John Saw

I think you summarize it well Amir. I think the most important tool we have in our arsenal is our spectrum, and pretty much everything we do is focused on leveraging that spectrum asset and making it mainstream. Making it one of the largest ecosystem in the world and making sure we have strong partnerships with other carriers to deploy more of it and make sure that we have a strong ecosystem and looking at deploying things like small cells, but always been an eye off playing to our strengths, basically using our spectrum as much as we can, dedicated spectrum where you need it, sort of no interference, using it potentially for backhaul. Right. Trying to generate signals from both sides of the wall, not just from the outside but from the other side of the wall from indoors as well. So, those are the tools that we have developed and mastered passionately involved with the network at Sprint and we speak with him two or three times a week just to make sure that we are all in try that we're leveraging the best tools we have and that he can bring the best help that he could to make sure that we have everything that we need.

Amir Rozwadowski

Well, thank you very much and certainly we wish you the best of luck with that.

John Saw

Thank you. Thanks for having us.

Question-and-Answer Session

Q -

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