Sprint turns to improving its wireless network now that a T-Mobile merger is dead

Unwilling to turn control of Sprint over to rivals at T-Mobile US, Sprint’s chairman vowed Monday to spend more money on the Overland Park-based company’s wireless network.

Merger talks between Sprint and T-Mobile, the nation’s No. 4 and No. 3 wireless companies, collapsed over the weekend principally over terms that would have left T-Mobile’s interests in control of the combined businesses.

“Now that the consolidation discussion is over, we will invest in the network,” Sprint chairman Masayoshi Son said in Tokyo, according to analyst Walt Piecyk of BTIG Research.

Piecyk and others listened as Son addressed investors and reporters in a quarterly earnings session for SoftBank Group Corp., which owns more than 80 percent of Sprint.

Son promised that Sprint would spend $5 billion to $6 billion a year on its network, Piecyk wrote. Current spending is on pace for $4 billion or less this year, and that is an increase from $3 billion previously.

Industry analysts have been critical of Sprint’s network spending as not enough to maintain the network or to keep up with rivals. Some reasoned that a merger-minded Sprint might see such spending as wasteful if it planned soon to combine its network with that of T-Mobile.

The decision to walk away from T-Mobile leaves Sprint as the smallest national carrier in a highly competitive market in which growth depends heavily on stealing rivals’ customers. Sprint’s 54.03 million subscribers trail T-Mobile’s 70.73 million, AT&T’s 138 million and Verizon’s reported total of 115 million retail subscribers, which excludes some connections.

Sprint executives have defended the company’s relatively low network spending as a reflection of their ability to spend wisely and to build off investments made while Dan Hesse was Sprint’s CEO.

The company also offered a Magic Box to customers with network problems, boosting their service as well as service for nearby Sprint network users. The box is a small cellular device that plugs into a wall socket. Sprint executives have acknowledged that more customers have asked for Magic Boxes than it can provide.

Sprint finance chief Tarek Robbiati had offered analysts in August another reason the company would spend between $3.5 billion and $4 billion this year on its network.

“This is a level we can support,” Robbiati said, according to a transcript by Seeking Alpha.

Son’s promises Monday did not include a funding source for Sprint’s coming $1 billion to $2.5 billion boost in annual network spending.

Bond analyst J. Davis Hebert at Wells Fargo Securities told clients Monday that Sprint’s outlook would be better “especially if SoftBank (or a partner) provides some capital support for network investment and deleveraging (although this does not feel imminent).”

Son, in discussions of Sprint’s financial health, had said that Sprint’s improved financial condition would allow it “to secure funding on its own,” according to a report by Bloomberg Technology.

Investors punished shares of Sprint and T-Mobile on Monday in the stock market’s first reaction to news that merger talks had ended.

Shares of the Overland Park-based wireless carrier lost 77 cents, or 11.5 percent, and closed at $5.90. It was the stock’s lowest closing price since July 2016. T-Mobile US shares fell $3.37, a 5.7 percent drop, closing at $55.54. Germany-based Deutsche Telekom owns more than 60 percent of T-Mobile.

Investors were protesting both companies’ failure to come up with a merger deal that would eliminate more than $30 billion in network investments, payroll and other costs.

“By failing to agree on how to divide this value, at least one and perhaps both of these management teams have grievously failed their investors,” analyst Jonathan Chaplin wrote in a note to clients of New Street Research.

Chaplin had estimated costs savings from a merger at $50 billion and had recommended investing in Sprint largely because of the prospects of a merger.

Son’s comments in Tokyo included his unwillingness to cede control of Sprint. He said SoftBank’s directors, including Sprint CEO Marcelo Claure, concluded that the U.S. wireless network is too important to SoftBank’s strategic plans.

Those plans target an increasing role for wireless communications with the rise of faster data speeds through 5G technologies and the emergence of more internet-connected devices and robots.

“Why did we stop merger negotiations? Basically, we didn’t think we should be agreeing to a deal that would result in our loss of control,” Son said, according to the Bloomberg Technology report. “There was just a line we couldn’t cross. And that’s how we arrived at the conclusion.”

Son also acknowledged that Sprint may face difficulties but said that his own plans for a wireless carrier in the United States make it necessary to keep control of Sprint.

“Even if the next 3-4 years will be a tough battle, 5-10 years later it will be clear that this is a strategically invaluable business,” Son said, according to Bloomberg.

SoftBank seemed to rule out one possible path for Sprint’s immediate future, a path suggested in the analyst note by Chaplin.

“If Masa (Son) believes so strongly in the value of Sprint that he is willing to walk away from a deal with T-Mobile, then he should buy the rest of it,” Chaplin wrote. “It will certainly be easier to fix outside of the public eye.”

A SoftBank announcement over the weekend took that idea off the table, at least for now. SoftBank said it would buy more Sprint shares but not seek ownership of more than 85 percent of its stock. Its stock purchases in the market would provide money to the sellers of Sprint shares but not the company.

Sprint separately announced Monday an agreement with Netherlands-based Altice N.V. to allow Altice USA to use the Sprint network to offer wireless services to its 4.9 million U.S. cable customers, gained in a 2016 acquisition of CableVision. In return, Sprint gains access to Altice’s Wi-Fi network and cable operations to help expand its own wireless service’s reach.

The agreement will help Sprint speed up its efforts to increase the density of its network’s footprint, a move designed to improve speeds and ready the network for 5G technology.

Claure also said in a Twitter post that the agreement offers a test of how wireless and cable operators could work together.

Claure is scheduled to speak Wednesday at a Wells Fargo Securities conference, and Sprint will provide a live webcast of the session on its website. The session is set to begin at 11:15 a.m. Central.

Sprint previously approached cable company Charter Communications about a merger, but it was rebuffed. Speculation also has included possible combinations of Comcast and wireless operators such as Sprint or T-Mobile.

This story was originally published November 6, 2017 at 9:24 AM with the headline "Sprint turns to improving its wireless network now that a T-Mobile merger is dead."