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Optical/IP

Sprint Guidance: Good to Go?

It may be too early to predict a telecom turn-around quite yet, but Sprint Corp. (NYSE: FON), at least, is claiming that its belt-tightening measures over the past months have started to pay off.

At an investment community meeting in New York today, the telecom giant announced it expects its financial results for the fourth quarter this year, as well as for all of 2003, to be better than previously forecast. The company also said it has cut its capital spending and has doubled its expected free cash flow (see Sprint Offers Guidance).

The company’s shares leaped almost 7 percent following the news today, rising nearly a dollar to $14.55 a share.

For the fourth quarter, Sprint said it expects its FON Group unit, which is comprised of its long distance, local, and data businesses, to earn between 37 and 39 cents per share on revenues of $3.7 billion. That’s up from the company’s previous guidance of 34 to 36 cents earnings per share. For the full year 2002, the company now expects to make $1.35 to $1.37 per share on total revenue of $15.2 billion, up from the previous earnings per share range of $1.32 to $1.34.

The nation’s third largest long-distance carrier and fourth largest wireless provider said it could raise earnings expectations for 2002 due to cost cuts and a favorable industry settlement on pay-phone access charges that should add about 2 cents a share to its earnings.

For 2003, the company expects revenues to be about $15 billion, down from the $15.2 billion it expects this year. But it anticipates that earnings per share will rise to between $1.40 and $1.45.

Sprint’s improved forecast came only a day after the company announced that it is slashing 2,100 jobs, or nearly 3 percent of its workforce (see Sprint to Slash 2,100 Jobs), as part of its plan to restructure operations and reduce costs. This was the second round of layoffs in less than a month for Sprint. In November, the company announced that it was cutting 1,600 jobs from its wireless division, Sprint PCS (NYSE: PCS) (see Sprint Cuts Costs and Jobs).

"The kinds of steps that we’ve had to take with respect to people are very distasteful to us,” Sprint president and COO Ron LeMay said at today’s conference. “But when you’ve got to do it, you’ve got to do it, and… our employees understand that.”

Jobs are not the only things being cut at Sprint. The company said today that by the end of 2002, it expects to have spent $100 million less in capital expenditures than previously anticipated. Sprint says it expects capital spending for 2002 to be $2.2 billion, and it expects spending to rise slightly next year to $2.3 billion.

These reductions in capital spending, along with tax refunds, and improved EBITDA in both its FON Group and the PCS Group, have helped increase Sprint’s cash position, the company says. It now expects to report $1 billion in free cash flow for 2002 -- double its last forecast amount.

While industry observers today were pleased with Sprint's cost-cutting measures and its improved forecasts for free cash flow, many caution that the company, like the rest of the industry, still faces many challenges. “These are just projections,” points out Davenport & Co. LLC analyst F. Drake Johnstone. “The question is whether or not they manage to reach those goals... They’re doing a good job of managing expenses, but nothing indicates that they’re turning the corner or that the industry is turning the corner.”

“It’s definitely good news for Sprint,” agrees Jeff Kagan, an independent analyst based in Georgia. “But it’s more a matter of managing the company… in a bear economy, than an industry turn-around.”

LeMay, however, insists that, if anything, Sprint has been too conservative in its forecasts. “My guess is that the economy will be better than is implicit in the guidance we’ve given,” he said.

— Eugénie Larson, Reporter, Light Reading
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capolite 12/4/2012 | 9:11:36 PM
re: Sprint Guidance: Good to Go? Sprint didn't drink the Cisco Kool-Aid and saved itself a ton of money. The stockholders should give Mary Lou the "unintentional hero" award for all the money she saved them by being such an incompetent bonehead.
BobbyMax 12/4/2012 | 9:11:36 PM
re: Sprint Guidance: Good to Go? Sprint has been cutting its cost of personnel and equipment. Unlike other vendors Sprint has saved a lot of money by not deploying MPLS. MPLS does not seem to perform well in a large network environment.
Kevin Mitchell 12/4/2012 | 9:11:27 PM
re: Sprint Guidance: Good to Go? What's glossed over by Sprint, is that their FON revenues are declining more than guided all year. Up until October, they have stated that FON Group revenues for the full year could decline in the mid single digits. Now with the statement that FON total revenues for 2002 are expected to be about $15.2B, that indicates a 10% decline.
fiber_r_us 12/4/2012 | 9:11:27 PM
re: Sprint Guidance: Good to Go? >Sprint didn't drink the Cisco Kool-Aid and saved
>itself a ton of money.

Except, they drank the ATM Kool-Aid and spent billions on the failed ION project... I don't think they dislike MPLS, they just blew their budget on ION and couldn't afford to rebuild their network twice in a few years... They are now behind.
excitedPhoton 12/4/2012 | 9:11:19 PM
re: Sprint Guidance: Good to Go? "Sprint didn't drink the Cisco Kool-Aid and saved itself a ton of money. The stockholders should give Mary Lou the "unintentional hero" award for all the money she saved them by being such an incompetent bonehead."

Oh yeah? Cisco's got a ton of kool-aid flavors. How about all-IP UTI L2TPv3 stuff? Let's use a different tunneling technology, and make Peter L happy.

-eeps
techtalkie 12/4/2012 | 9:11:15 PM
re: Sprint Guidance: Good to Go? I am keen to know if SPrint is exploring new markets ? Is Samsung Telecom anywhere near their vendor list ?
broadbandboy 12/4/2012 | 9:11:04 PM
re: Sprint Guidance: Good to Go? What I would like to know is, what's the breakdown between local and LD voice and data?

Whats growing and whats shrinking?

Are most revenues still coming from voice? Whats the growth rate of voice vs. data revenues?

And how about a breakdown between Internet/IP and frame relay/ATM revenues? Which are larger in terms of total revenues, and which ones are gowing the fastest?

Margins on each of these would be nice.

Were any of you analysts at the analyst meeting? Care to share some insights with us?

Thanks in advance,

BBboy
broadbandboy 12/4/2012 | 9:11:03 PM
re: Sprint Guidance: Good to Go? fiber-r-us wrote: "Except, they drank the ATM Kool-Aid and spent billions on the failed ION project... I don't think they dislike MPLS, they just blew their budget on ION and couldn't afford to rebuild their network twice in a few years... They are now behind."

Hey fiber, I agree with you about ION, that was a money pitt. I don't think it was necessarily a wrong technology, its just that the integrated access over packet turned out to be alot harder than they realized. And I heard (from a Sprint engineer) they had a lot to trouble getting that Cisco prem box to work right.

That's why I am not so sure Sprint would necessarily be better off with MPLS. I mean, where is the business case that says you have to use MPLS? If they are trying to sell IP--VPNs to enterprise businesses, why do they need MPLS? Maybe they don't want to run tunnels inside of tunnels.

I would like to challenge you to name one specific revenue generating "thing" that your network can do because of MPLS, that Sprint cannot do becuase they don't have it.

Interested?

BBboy

Packet Man 12/4/2012 | 9:11:02 PM
re: Sprint Guidance: Good to Go? His comment:
I would like to challenge you to name one specific revenue generating "thing" that your network can do because of MPLS, that Sprint cannot do becuase they don't have it.

My comment:
Me too. I'm always a fan of new technology but I've yet to see real good reasons to deploy MPLS? What can it give a network (and the business behind it) that an IP network can't? All I hear is that is can do VPN/VLAN stuff which I seem to think we already have licked? I sometimes think MPLS was pushed by ATM vendors as a way of keeping ATM alive one way or another. But if I had a few m(b)illion in my pocket and I decided to start up this 'cozy little ISP' and it was 100% IP/POS, what would a customer have to ask of me that I could not do. No remarks like QoS, or Frame Relay or ATM either please. IP DSCP takes care of the QoS. As for FR/ATM usually there is an IP router at the end of that PVC, so if its routing I wanna do then IP only! Voice you say? I can do that over IP now too.

Seriously though....anyone got a good web link or book that I should start referencing?

Me
willywilson 12/4/2012 | 9:10:57 PM
re: Sprint Guidance: Good to Go? 1. What's the breakdown between local and LD voice and data?

2. What's growing and whats shrinking?

3. Are most revenues still coming from voice? Whats the growth rate of voice vs. data revenues?

4. And how about a breakdown between Internet/IP and frame relay/ATM revenues? Which are larger in terms of total revenues, and which ones are gowing the fastest?

5. Margins on each of these would be nice.

----------

1. Only guesses are possible because no really knows what's going through each pipe. For example, more than half of all residential second lines are used for dial-up modems, which go through the circuit voice network. How would you classify these lines? How would you classify a business PRI that has 15 channels dedicated to the PBX and 9 channels hooked to the router?

2. Voice grows pretty much with the population and the economy. Typically 3%-5% a year. At times like now, more like 1%. The voice mix is tilting more toward wireless and UNE-P CLECs, so you've seen a decline in RBOC access lines.

Wireline L.D. voice has dropped quite a bit because of the any-distance wireless pricing, along with big buckets of minutes. Overall, however, there's no reason to think that overall LD traffic isn't on the long-term growth path of 3%-5%.

3. The circuit switched network generates 85% of the revenues and all of the profits. The price of a 64 kb channel sold as "voice" is at least five times that of 64 kb channel sold as "data." This is why the "data CLECs" were doomed from the very start.

4. This is impossible, because a very large share of the IP traffic runs over frame relay and ATM.

5. Data loses money. Cash flow margins on voice are well above 50%. On residential second lines, the cash flow margins are above 90%. This is why the phone companies haven't exactly been easger to roll out ADSL or to reduce prices on it.
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