North American carrier, Sprint, has a problem. It is burning through a lot of cash, an estimated $4.5 billion in 2015. Early in May, the business admitted that it has spent $914 million in cash in the first quarter of the year. At the time, the business had $7.5 billion in liquidity, which includes cash, cash equivalents and short-term investments (amounting to $4.2 billion) plus $3.3 billion “undrawn borrowing” arrangements. In other words, Sprint has the ability to borrow $3.3 billion but has yet to take advantage of the facilities. Fortunately, as well as an undrawn debt facility, Sprint also has rich parents in the shape of Japanese carrier SoftBank, but the business needs to start turning a profit to reverse the cash burn. We have already seen that SoftBank Chief Executive Officer, Masayoshi Son, and Sprint Chief Executive Officer, Marcelo Claure, stating that they would be open to the idea of selling off some of Sprint’s 2.5 GHz spectrum. However, according to MoffetNathanson analyst Craig Moffett, whilst a sale of 2.5 GHz spectrum will provide a funding cushion, the value of this spectrum is currently declining.
However, Sprint needs to address the reason for the cash burn: their network. It needs to be improved. Craig puts it as such: “…Sprint needs a better network. They need to finish repricing their base. And they need low band spectrum. They don’t have enough money for any of these, let alone all three. A modest infusion of cash from selling spectrum wouldn’t change the equation. Nor even would a massive equity raise. It is not enough for Sprint to fund its burn rate. It needs to show that it can reverse its burn rate.” In other words, Sprint’s business needs a rethink. Marcelo Claure told Bloomberg that, “We are open minded to business arrangements that could generate long-term shareholder value, but, first and foremost, spectrum is to be used for Sprint, and then we will look at extra spectrum to see if there’s any interest.” Sprint control an averaged 120 MHz across ninety of the top one hundred markets. The carrier is deploying 8T8R radios (eight-branch transmit, eight-branch receive) to give it a high-performance network but unfortunately, this high-frequency spectrum has not lived up to the hype as promised back in 2012. In an ideal world, Sprint would be able to deploy their high-frequency spectrum in order to increase capacity in dense urban environments, but unfortunately siting and deployment issues have withheld network development. Sprint are aware of their cash burn and this has curtailed 2.5 GHz deployment. Another issue is the complexity of providing coverage using a high-frequency network, because the signal is easily blocked by objects, which means that many small cell sites and repeaters are needed to provide meaningful coverage. These are the issues that the next generation wireless networking technologies are likely to suffer from.
It appears that Sprint are between the metaphorical rock and hard place. They need to improve their network, but in order to do so, might need to sell off some of the high-frequency spectrum (we do not know who may be interested in this). However, unless the network is improved and customers start returned to Sprint, there may not be the cash for a network improvement plan on the scale that Sprint needs! However, we have seen how Sprint are attempting to tackle their network issues one local market at a time.