Sprint's CFO: Network Improvements Keeping Churn Rates Low

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Yesterday, Sprint presented at the Deutsche Bank's 24th Annual Leveraged Finance Conference and the Chief Financial Officer, Tarek Robbiati, was talking about Sprint's network and how the carrier has worked hard to improve the quality of its network. Robbiati explained that more than 200 million Americans are now able to access Sprint service on the 2.5 GHz band: the carrier has rolled out 2.5 GHz coverage to more than 70% of the 300 million POPs the network operates from. To coincide with rolling out the 2.5 GHz network, Sprint is also better able to introduce carrier aggregation to customers, both dual band (allowing a theoretical download speed of around 100 Mbps) and three band (of up to 230 Mbps download speeds). Robbiati is confident that Sprint will continue to improve the network: "We still have further upside from improving the experience and the performance of the network either by way of coverage or by way of actual speed."

There are a number of reasons why Sprint needs to roll out the 2.5 GHz spectrum and the main one is that unused spectrum is essentially wasted money but the business also appreciates that it needed to improve the quality of its network compared with a few years ago. Sprint has deliberately sat out of the current 600 MHz frequency auction that the American regulator is processing, the FCC, on the grounds that if it were to win any spectrum at the 600 MHz point it might have to cooperate with other carriers to avoid falling foul of spectrum coverage rules, thanks to its considerable holdings at the 2.5 GHz point. Sprint would need to pay for any 600 MHz licence fees but also to develop a new network operating at this frequency, which would likely be working very differently to its existing mid and high frequency coverage. Sprint's current network improvement plans revolve around installing many small sites rather than using fewer, longer ranger macro sites, which the 600 MHz frequency would encourage the lower the frequency, the greater the range of service. America's carriers are expected to use the 600 MHz frequency to provide coverage for wide areas. Sprint's line of thinking is that the better the quality of the network, the lower the churn rate, that is the number of customers who switch network away from Sprint. So far the results are promising: for the second quarter 2016, Sprint's churn rate was at an all time low at 1.39%, having been reducing for the last six quarters.

However, Robbiati is mindful that Sprint needs to keep its churn rate low. In late 2014, the company acquired many customers because of its 50% off offers and these contracts will be expiring soon. Robbiati explained that Sprint has noticed a very strong correlation between network performance and churn rate and that half of customers leaving the network is because of network coverage. Around one third of customers leave for price reasons and the remainder leave for service reasons. Sprint is concentrating on keeping and improving network performance in order to retain these customers.

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