May 14, 2015 — The words “massive densification” of a cellular network are enough to make any wireless infrastructure provider salivate. And when they came from lips of Marcelo Claure, president and CEO of Sprint, during fourth quarter 2014 earnings call, it sounded really good. But the issues surrounding cash burn and sinking revenues continue to cause concern among analysts about the carrier’s financial health.
The head of Sprint discussed increasing the macro, small and even Wi-Fi sites across its entire spectrum holdings as it transitions to VoLTE. The carrier has issued RFPs to vendors and Claure reported “significant potential savings compared to our Network Vision pricing.”
Sprint is finalizing its plan for a long-term next-generation network predicated on deploying a lot more infrastructure in its network.
“The only way you’re going to get the true outcome or you’re going to be able to truly unload the value of the rich spectrum that we have is by massively densifying our network,” Claure said. “And where we are right now is trying to figure out what is the right combination between macro sites and between small cells.”
Additionally, Sprint will add Wi-Fi as a complementary layer to its network, supporting Wi-Fi calling on 27 devices. It has entered into a relationship with Boingo, which enables Wi-Fi roaming and connectivity in 35 major U.S. airports.
“Sprint continues to clearly be focused on the network improvement – and has seen some third party results verifying its progress,” wrote Jennifer Fritzsche, senior analyst, Wells Fargo. “Focus continues as management indicated it is in the final stages of engineering the network densification plan (i.e.: mix of macro sites and small cells). We believe Sprint should continue to see positive movements in the right direction.”
Sprint forecast accrued CapEx is going to be about $5 billion in fiscal 2015, which is targeted at 2.5 GHz deployment. Fritzsche was looking for form visibility into the carrier’s network investment plan, however.
“In a somewhat surprising move, Sprint provided limited FY2015 outlook, and capex was viewed as more of a disappointment considering an expected announcement of a major network overhaul did not come,” Fritzsche wrote.
Questions About Sprint’s Financial Picture
Even as Sprint makes big deployment plans, some analysts question the finances of the big four carrier. Everyone has seen the commercials where spokesman Kevin Durant cuts your cellular bill in half, and that has led to increased users, but lower revenue per user. Service revenue for the fourth quarter was down 9.4 percent to $7.14B and equipment revenue was up 14.5 percent to $1.14B.
“Sprint reported mixed FQ4 2014 results, in our view, as revenue came in light of our estimates but EBITDA beat,” wrote Fritzsche. “The company reported subscriber additions that were better than expected, though still resulted in a loss of postpay phone customers that were more than offset by tablet additions.”
And then there is the issue of cash burn. Cash capex was $2 billion in the fourth quarter, compared with $1.5 billion year over year, partly because of the 2.5 GHz build out. Free cash flow was negative $914 million for the quarter compared to negative $1.1 billion year over year.
Sprint officials assured stock analysts that the liquidity was not an issue for concern. Sprint ended the quarter with a total liquidity position of $7.5 billion including cash, cash equivalents and short-term investments of $4.2 billion as well as $2.8 billion of undrawn borrowing capacity under its revolving bank credit facility and $500 million of undrawn capacity under its service receivables financing agreement at the end of the quarter.
Information in the article courtesy of Seeking Alpha.