Analysts split on Sprint’s transformation and network plans

Sprint’s new focus on its transformation won kudos and concerns from investment analysts Wednesday, with a heavy dose of attention to the company’s plans for its wireless network.

Overland Park-based Sprint released its latest financial results and customer counts Tuesday. They showed that Sprint’s business continued to gain customers and, for the first time in nine years, operated at a profit for a full year.

Net profit, which comes after covering non-operating expenses such as interest payments on debt, remains a couple of years off.

“In our view, Sprint is making great strides on its turnaround strategy,” analyst Jennifer Fritzsche wrote to her investment clients at Wells Fargo Securities in a note Wednesday morning.

She said the latest results reflect the company’s “disciplined approach.”

Sprint executives said Tuesday they are focusing on spending their shrunken marketing budget more effectively, targeting high-quality subscribers rather than just trying to pad the customer count, and improving network coverage and speed in the most cost-efficient ways.

Jeffrey Kvaal, who follows Sprint at Nomura Securities International, noted its recent customer gains and financial improvement as signs of “steady operational progress.”

But he worried about the company’s network plans.

Sprint said it plans to spend $3.3 billion on network capital investments in the coming 12 months, less than it has been spending and less than analysts say is needed.

Sprint’s network investment budget is below levels that rival wireless carriers spend when compared with the number of subscribers each serves, Kvaal wrote in his Wednesday analysis. Sprint plans to invest about $50 per customer, while the others target $65 to $100 per subscriber per year, Kvaal said.

Kvaal said he is not convinced by Sprint management’s statements that it is investing in network improvements more efficiently than other carriers are.

“We believe this lowered level of investment will let Sprint’s network quality idle while its rivals forge ahead,” Kvaal said.

Similarly, Jefferies Equity Research analyst Mike McCormack raised doubts about the network investment plan at Sprint.

“In our view, a delay until fiscal year 2017 on (network) densification could make sustainable subscriber gains problematic,” McCormack told clients in his report Wednesday.

Sprint shares fell 20 cents Wednesday, closing at $3.47.

CEO Marcelo Claure had sought to fend off such doubts during a conference call with analysts Tuesday after the company had reported its results. He said Sprint’s heavy network investment came before he arrived with the company’s Network Vision project under then-CEO Dan Hesse.

Sprint’s next phase is called “network densification,” and Claure said the company will handle it differently.

Teams are using “big data,” Claure said, to pinpoint where network improvements are needed and to figure out the least costly way to deliver the service in that area. In some cases, it will mean adding another tower to the network. In others, Sprint will use small cell equipment, “monopoles,” “femtocells” and other technologies, whatever works at the least cost.

Claure said the pace of network investment depends in large part on getting municipalities to grant permits and licenses to add this equipment at the sites where it needs to go. Sprint expects approvals to cover $3.3 billion of investments this year.

“In the case those approvals come faster — of which so far we’re satisfied at the rate they’re coming — we will be spending potentially more than $3 billion. If these approvals get delayed, then we will move it forward,” Claure told analysts during the conference.

This story was originally published May 4, 2016 at 11:03 AM with the headline "Analysts split on Sprint’s transformation and network plans."