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Sprint: Revenue up 3%, Capex Will Rise Again

Dan Jones
10/25/2016

Sprint posted its first year-over-year revenue gain in two years on Tuesday for the second quarter of its 2016 fiscal year, as analysts asked how low the operator's capex could go.

Sprint Corp. (NYSE: S) posted net operating revenue of $8.25 billion, up 3% compared to $7.97 billion a year ago, while its quarterly net loss of $142 million -- or $0.04 per share -- was clearly an improvement on the net loss of $585 million -- or $0.15 per share -- a year ago.

Sprint also added more subscribers on a monthly contract (postpaid) for the quarter ending in September. Postpaid additions in the quarter were about 347,000, around 285,000 more than in the year-earlier period. "I think we're doing relatively good in acquiring new customers," said CEO Marcello Claure during an earnings call with analysts.

Analysts on the call, however, seemed to key in on the continuing reductions to Sprint's spending on its network. "There is a way you can do a lot more with less," said CEO Marcello Claure on the call.


For all the latest news on wireless, visit Light Reading Mobile.


Sprint has drastically cut its capital expenditure (capex) over the last couple of years, as it moves to a small cell-based network densification strategy. For instance, in the second quarter of 2013, Sprint spent as much as $1.9 billion on capex. On the call on Tuesday, Sprint CFO Tarek Robbiati said that the operator spent just $800 million during the second quarter of 2016. (See Sprint Promises Better LTE on Lower Capex.)

Sprint has been getting together its permits and authorizations to deploy more small cells in its 2.5GHz densification program. "Permits have doubled from last quarter," Sprint CTO John Saw said, noting that the operator has now deployed 200 small cells in Manhattan.

Robbiati said that Sprint has been keeping its spend down through "surgical small cell deployments" and software updates on the network. Sprint started making two-channel carrier aggregation (2CA) software updates last year and has started deploying three-channel CA this year. Carrier aggregation involves bonding separate 4G radio channels to boost speed and capacity. (See Sprint Ups the 4G Speed Ante to 230 Mbit/s.)

Nonetheless, as the operator gets its permits to deploy small cells, capex spending will rise. The network expenditure will start to "ramp up" in the second half of Sprint's 2016 financial year and through 2017.

Robbiati said cost-controls in other areas are still kicking along nicely for Sprint. The CFO told analysts that Sprint reduced costs by $580 million in the second quarter and by $1.1 billion in the year to date. (See Sprint to Take $2B Shave.)

Sprint couldn't comment much on its spectrum-lease/buyback notes issuance yet, with the bids still underway. Nonetheless, Robbiati described it as "over-subscribed." (See Sprint Plots $3.5B Spectrum Sale/Lease-Back.)

CEO Claure did comment briefly on the $85.4 billion AT&T Inc. (NYSE: T)-Time Warner Inc. (NYSE: TWX) deal. He said that he had been taking calls from bankers over the weekend. (See AT&T Shakes Industry With $85B TW Bid.)

"Our strategic value to many has definitely grown," the CEO said.

Claure echoed remarks made by T-Mobile US Inc. 's CEO John Legere. "We're very confident the US regulatory system is going to work... Relevant content is going to be available to us," Claure contended. He added that Sprint's large 2.5GHz spectrum holdings will make it an important player in the mobile video future. (See T-Mobile: AT&T & TW Means Ma Bell Not Focused on Mobile.)

Despite sales improvements, Sprint's share price had fallen by $0.53 -- or 7.59% -- to $6.40 at the time of publication.

— Dan Jones, Mobile Editor, Light Reading

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DanJones
DanJones
10/25/2016 | 7:25:37 PM
Re: Why's the stock falling?
Yeah, could be!
bosco_pcs
bosco_pcs
10/25/2016 | 6:28:58 PM
Re: Why's the stock falling?
Per your own reporting though as implied by the Title: Capex Will Rise Again

'"Nonetheless, as the operator gets its permits to deploy small cells, capex spending will rise. The network expenditure will start to "ramp up" in the second half of Sprint's 2016 financial year and through 2017."

Spending less on cell relative to tower doesn't mean it can spend less both in relative and absolute terms. 

But I think we are - or maybe just me :) - sort of got sidetracked. Capex may or may not be the stockholders' concern, even though I offered it up as one of the many reasons why the immediate negative reaction to the stock price.

Quite frankly, I lean more of the stock market gamemanship explanation. Its stock price has run up substantially in a relative short time and Softbank being the majority owner, there is little if any catalyst for more price appreciation. If it doesn't go up, it tends to fall because of the supply & demand dynamics.
DanJones
DanJones
10/25/2016 | 5:59:21 PM
Re: Why's the stock falling?
They're still claiming that capex will be less because they're doing small cells not towers. THis is the way the industry is going to go if 5G plays out as expected.

 

Though no one is talking how much the backhaul will cost, ah, there's the rub!
bosco_pcs
bosco_pcs
10/25/2016 | 4:58:51 PM
Re: Why's the stock falling?
Oops, 

By Capex, I meant future capex, which has to eventually go up.

I mean, stock is about what-are-you-going-to-do-for-me-tomorrow. Beating numbers is good but they are lagging indicators and not leading ones. Especially the bottomline, which can be easily manipulated. The logic goes like this: if $S has to spend again,the bottomline may not hold. And cashflow will suffer.

When I was (half) listening on CNBC, there is also some criticism about the post paid number. 

To be clear, $S is performing well in terms of churn rate and the CEO talks a good game. However, the devil is in the details. For example, the CEO claimed it has a lot of spectrum but he glossed over the fact that they are the low band. That is why they need so many more small cells. And like i said previously, $S's services are still questionable, even if it claims in TV ads that it is within 1% of Verizon ($VZ). So you can fool the average customer and not with the analysts following it
DanJones
DanJones
10/25/2016 | 4:25:25 PM
Re: Why's the stock falling?
You think the low capex spend is hurting them? Dammed if you do, dammed if you don't!
bosco_pcs
bosco_pcs
10/25/2016 | 2:25:35 PM
Re: Why's the stock falling?
A few thoughts

1. Comparing to T-Mobile ($TMUS) , Sprint ($S) number is really lackluster

2. Capex

3. Technically (stockwise), the stock is in the upperbound and it has come a long way from the bottom, so the stock is due for a rest

Businesswise, as a user, I am still debating if I want to go to another carrier when I upgrade my phone soon. Really, granted that my phone is antiquated, if you have problems getting signals in major metro areas like NYC, it doesn't matter what cell strategy $S is doing. And forget it when you pass through CA Central Valley!

 
DanJones
DanJones
10/25/2016 | 12:18:11 PM
Why's the stock falling?
They beat broad exceptations and seem to be delivering on the 5-yr turnaround plan. Market fickleness? General fatigue?
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