America's fourth largest carrier, Sprint, is finalizing the paperwork in order to sell and lease back around 10% of its current spectrum. Sprint has valued this spectrum at over $14 billion but is aiming to raise approximately $3.5 billion, according to anonymous individuals close to the company. If successful, the deal will generate cash for Sprint but will increase their monthly costs. This latest news follows a number of other sale and leaseback arrangements that the carrier has performed over the last year. This sort of business deal is relatively common in some industries as it represents a reasonably easy way for a business to realize cash by using one of its existing assets, during times when for whatever reason it would be difficult (or expensive) to raise cash through the fixed interest market. The reasons why a business might prefer a sale and leaseback could be because the fixed interest (or bond) markets are relatively illiquid, or because the market believes the company to be risky and so would require a higher interest rate than the business is comfortable with. A sale and leaseback arrangement is often cheaper for a business because it is backed by an asset.
As a business, Sprint is undergoing a difficult period. Last year it was relegated to the position of America's fourth largest national carrier as T-Mobile US was promoted to third. The company has faced a difficult few years, struggling with a reputation for poor network coverage and poor customer services. The company has enhanced its network and shored up its customer services. As one of America's two smaller national carriers, it is able to undercut the two larger carriers (AT&T and Verizon Wireless) and has followed T-Mobile US in offering an inexpensive, "unlimited" plan for customers. Sprint is in the process of upgrading its network but because it has significant spectrum at the 2.5 GHz point, or perhaps because it has limited financial resources, the carrier has adopted a different network strategy. It is upgrading its infrastructure city by city, aiming to have the strongest (in terms of reliability, coverage and transfer speeds) network as it does. Sprint's high frequency spectrum in the 2.5 GHz range has less range and building penetration compared with other frequencies, such as the 600 MHz spectrum that the FCC is currently auctioning off, it is unable to effectively use long ranged, or macro, cell sites to boost coverage. Instead, Sprint is using large numbers of smaller, shorter ranged sites. Although Sprint has not confirmed the numbers, it is believed to have been able to deploy these at a relatively low cost. Sprint is also investing in new network technologies.
At this time, Sprint have not commented on the rumored sale and leaseback deal and we may have to wait until an official announcement. Meanwhile, the carrier has been using significant sums of cash as it competes with T-Mobile US and redevelops its network: in the last financial year, which ended in March, the company had a negative cash flow of almost $3.2 billion. Despite this, Sprint's parent company, Japanese carrier SoftBank, appears confident in the carrier: earlier in the year SoftBank bought British chip designer, ARM Holdings, rather than used this money to prop up the US carrier.