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A tale of two Sprints: Can Sprint really go it alone?


10/10/2011

So what exactly is Sprint up to?

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By its statements and actions last week at its analyst conference, Sprint seems to have every intention of walking away from Clearwire and its treasure chest of spectrumódespite the facts that 1) Clearwire already runs Sprintís 4G network, 2) Sprint owns a majority stake in the operator and 3) Sprint will never again have the opportunity to pick up such an untapped mother lode of frequencies.

Sprint may be playing a very public game of chicken with Clearwire, pressuring it to supply the network configuration and terms it wants by threatening to yank its business. Sprint is by far Clearwireís largest customerólosing Sprintís 4G business would likely drive the company toward bankruptcy. Thereís been some speculation among analysts that a Clearwire bankruptcy is exactly what Sprint wants. In receivership, Clearwire would be forced to sell off its assets, allowing Sprint to buy back the spectrum it ceded to Clearwire in 2008.

That would be a very dangerous game for Sprint to play though. The market for spectrum has changed considerably since 2003 when future Sprint acquisition Nextel picked up bankrupt WorldComís nationwide 2.5 GHz licenses for a paltry $144 million (Telephony: Big Nextel picks up WorldCom wireless assets).

Unfettered mobile broadband spectrum is a scarce resource today, and despite Verizon and AT&Tís criticism of the 2.5 GHz bandís less-than-ideal location on the electromagnetic spectrum chart, both operators probably would jump at the chance to buy it, thus securing their mobile broadband plans for the next decade if not longer. If Sprint really plans to get licenses back through the bankruptcy courts it would not only be paying for the same spectrum twice, but the second time around it would wind up paying a huge premium.

Why Sprintís Dan Hesse would take such a huge risk is beyond me. However, it would be a useful exercise to examine the two distinct possible versions of Sprint that could emerge from all this when the dust settles. If Sprint really does plan to cut its losses with Clearwire it will become a very different offer with vastly different prospects than if it were to keep Clearwire in its fold. Weíll take a look at both scenarios in two columns over the next two days, starting with Sprint severing ties with Clearwire.

Sprint, Version 1: Sprint On its Lonesome

If Sprint is really saying goodbye to Clearwire, itís taking a massive hit to its ambitions. Sprintís strategy has always been to provide loads of unrestricted servicesóboth voice and dataóbolstered by efficient technology and the strongest spectrum position in the industry.

If Clearwire goes away, Sprint becomes an operator with moderate spectrum resources, with a little more than 50 MHz of PCS and 800 MHz spectrum averaged across the U.S. population. That would put it roughly in the same boat as T-Mobile, which has said it doesnít have the licenses to deploy an LTE network of its own (forcing it to accept an acquisition offer by AT&T).
The efficiency and flexibility of Sprintís CDMA technology gives it an advantage over T-Mobile, allowing it to deploy LTE where its GSM counterpart canít. As we laid it in last weekís analysis of Sprintís LTE rollout (CP: Sprint strikes out on its own with LTE), Sprint can gradually shut down small CDMA 1X and EV-DO carriers, combining them in different configurations to create a fat LTE carrier. But Sprint canít just shut down CDMA willy nilly. It needs to maintain its voice network, and with the introduction of the iPhone 4 and 4S this month, it actually needs to bolster its EV-DO data network to handle the onslaught of millions of new unlimited 3G plans.

That means Sprint most likely will deploy a 5 MHz-by-5 MHz LTE carrier next year, which is half the size of the 10x10 carriers currently deployed by AT&T and Verizon. That puts Sprint at an immediate disadvantage, since 4Gís only benefit from the consumerís perspective is speed. With a network half as fast as its two biggest competitors, Sprint wonít be able to make the connection speed claims of its competitors. Even T-Mobileóif it succeeds in getting more dual-carrier high-speed packet access plus (HSPA+) devicesócould leave Sprintís network in the dust.

As Sprint shuts down its iDEN network and moves many of its CDMA carriers to the 800 MHz band, and as its moves more mobile broadband from EV-DO to LTE, it can start allocating more PCS to LTE, but the most it can expect to achieve is a single 10 MHz-by-10 MHz carrier without jeopardizing its CDMA network performance. That would put it on par with AT&T and Verizonís current LTE networks but at that point the two mega-operators will have started dipping into their 700 MHz reserves and advanced wireless service (AWS) reserves, deploying additional 10x10 MHz and 5x5 MHz carriers in key markets. And just as Sprint will be able to reallocate spectrum from 2G and 3G to 4G, Verizon and AT&T will be able to do the same, re-farming PCS and cellular frequencies to additional LTE carriers.

Sprintís biggest concern isnít speed, though, its capacity. It doesnít have the spectrum reserves or the flexibility to launch new LTE carriers if demand for mobile broadband proves to be bigger than expected. The iPhone filled up AT&Tís first 5x5 MHz HSPA carrier in two years, forcing AT&T to scramble to get more 3G on its networks as quickly as possible. Sprint projects that it will have enough LTE capacity to get it to 2014. If LightSquared receives permission to build its LTE network on Sprintís Vision architectureógiving Sprint access to the equivalent of another 5x5 MHz carrieróthen Sprint predicts its good through 2015. Those estimates, however, seem overly optimistic in light of recent industry developments. AT&T is already in a far better spectrum position than Sprint, yet it seems to think it can only secure its 4G future by buying T-Mobile.

Sprintís capacity crunch would be exacerbated by its unrestricted smartphone data policies. Those all-you-can-eat plans are Sprintís primary competitive differentiators, but theyíre also untenable under on any 4G network as small as Sprintís would become. The biggest casualty of a Sprint divorced from Clearwire would be its unlimited plans for smartphones. Its unlimited 4G modem plans certainly wouldnít survive the transition from WiMAX to LTE either.

Come back tomorrow for the second part of our series on Sprintís future plans:

Sprint, Version 2: Sprint Plus Clearwire



 

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