Feature Article

October 29, 2012

Investment Aside, Sprint Still the Island of Telecom's Misfit Toys

It's a really good thing Sprint is getting taken over by Softbank for $20.1 billion, because the company hasn't exactly made good decisions when it comes to buying and deploying technology. Nextel, WiMax and Clearwire, HD voice via CDMA and the Apple iPhone deal all loom as expensive and/or non-standard projects that haven't helped advance the company.

Sprint started down this path of bad decisions with the purchase/merger of Nextel back in 2005. For its trouble, Sprint got over 200 million subscribers, spectrum in the 800 MHz band, and iDEN push-to-talk technology. The 800 MHz spectrum came with the expensive of having to relocate or "reband" existing users to different frequencies in order to clean up interference problems with public safety and commercial systems.

But the bigger train wreck was moving customers from Nextel's iDEN network onto Sprint's CDMA network – a project that has taken years and resulted in Sprint taking a $29.45-billion loss on the merger in 2008. The iDEN network will be finally shut down on June 30, 3013, with customers migrated to Sprint Direct Connect's push-to-talk (PTT) services.  

 Direct Connect is an IP-based service running over Sprint's CDMA data network.

For many companies, the experience with Nextel would be enough. But Sprint decided to get into WiMAX at the same time it was trying to integrate Nextel's iDEN network. Sprint first started up its own WiMAX service, Xohm, then ended up merging the offering with struggling U.S. WiMAX provider,  Clearwire, in 2008.

Care to guess what happened to WiMAX?

Despite owning around 48 percent of the company at the time and being the largest shareholder of Clearwire, Sprint didn't have business control. While Sprint went out and invested money in deploying WiMAX phones, promoting the "first" 4G data network, Clearwire flirted with LTE deployment and selling off some of its 2.5 GHz spectrum. 

Clearwire started trialing LTE in 2010, casting doubt on WiMAX's long term future both at it and at Sprint. By the fall of 2011, Sprint announced it was committing to LTE for its own network upgrade. 

Finally, Sprint announced this spring it would stop selling WiMAX phones and lined up solidly behind LTE with the introduction of the HTC EVO 4G LTE phone.

With the Softbank investment locked up, Sprint has maneuvered to increase its share in Clearwire from 48 to 50.8 percent. Sprint says Clearwire remains an independent company with an independent management and board, keeping Clearwire at arm's length so it won't end up stuck with Clearwire's debt on its balance sheet.  

In its most recent financials reported on October 25, Clearwire lost $41.3 million and is cutting back on its capital spending targets for its LTE network by more than half, in order to stretch out its cash on hand to fund operations. With the adjustment, Clearwire says it has enough money to fund its operations until the end of the third quarter of 2013 – perhaps another reason why Sprint doesn't want to have control of the company. 

Watching Clearwire go into bankruptcy, then acquiring the assets as the primary owner and a big debt holder, may be the backroom plan.

But Sprint has at least two more questionable decisions on the books. The company announced it would deliver HD voice using Qualcomm's 1X Advanced CDMA technology, embarking on another round of network hardware upgrades. 

Continuing to invest in CDMA technology while the world is going to LTE is a questionable decision, since the money spent on 1X Advanced could be used to accelerate Sprint's own LTE deployment.

Connecting to that is a multi-year, multi-billion dollar commitment to Apple to sell iPhones. The Apple iPhone 5 doesn't support CDMA HD voice or Voice over LTE (VoLTE) at this time, leaving Sprint with a very sexy phone without the ability to support HD voice – a feature it highlighted this spring as it started its slow rollout of LTE and 1X Advanced.

It's a big picture of expensive, diverse technology that has to be supported while it is in operation, and a portfolio of wireless offerings that is likely to continue to cause frustration among consumers and businesses.

Edited by Braden Becker

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