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Sprint’s (S) Wireless Expansion Plans Bode Well, Risks Stay

Zacks

On Nov 28, we issued an updated research report on U.S. national wireless carrier Sprint Corp. S. The company is actively pursuing deals to expand its wireless base.

Positives

We expect the company to benefit from its newly initiated growth and investment plans. These plans includeefficient usage of capital, reduction of cell sites, elimination of dual networks, backhaul efficiencies, reduced churn, lower roaming charges and energy cost savings which are expected to rake in more profits for Sprint in the years ahead. Moreover, the upcoming launch of its new 5G technology, attractive promotional plans, tilt toward IP-enabled cloud services and sale-leaseback transactions to pay-off debts are sure to boost its customer base and improve liquidity.

Sprint is on track with its network modernization and integration efforts, which should fortify its position in the wireless industry. The company further tries to save costs by relocating its mobile towers from the expensive space leased from Crown Castle International Corp. CCI and American Tower Corporation AMT to the lesser expensive plots on government-owned properties.


In Sep 2016, Sprint and Nokia Corp. NOK promoted their three-channel carrier aggregation in the Kansas City’s LTE Plus Network which was followed by a live telecast at Kauffman Stadium in Kansasa City and at Soldier Field in Chicago. The three-channel carrier aggregation was advertised using the latest network technology devices – the Samsung Galaxy Note7, Galaxy S7, S7 edge, HTC 10 and LG G5 – each having Internet download speeds of more than 230 Mbps (Mega Bits Per Second). Sprint has already expanded the three-channel carrier aggregation in more than 500 cell sites in Chicago.

Latest Deal

Sprint is about to close its deal with Kroger’s i-wireless – a U.S.-based MVNO (mobile virtual network operator), headquarted in Kentucky — which uses Sprint’s CDMA, EVDO, WiMAX and LTE networks to provide wireless coverage. Sprint has reached the final stages of regulatory review on the deal to acquire a 70% stake in i-wireless. Each of Kroger and Genie Global Inc., which jointly own i-wireless, will retain a 15% stake in the company.

The financial terms of the deal – announced by Sprint in May 2016 – have not been disclosed yet. Sprint claims that it is focused on boosting its Assurance Wireless brand by merging it with i-wireless’ Access Wireless.

Uncertainties

Of late, Sprint has been trying all means to check churn and fend off competition. Also, the company has been continually making efforts to lure customers from rival carriers such as AT&T Inc. T and Verizon Communications Inc. VZ by offering attractive promotional plans and discounts. This in turn has led to high cash burn and heavy losses. Notably, with more smartphone launches coming up, specifically iPhone 7, we expect the promotional offers to dent margins.

Further, Sprint’s decision to skip Federal Communications Commission’s (FCC) 600 MHz low-band airwaves auction will save cash for the company but will limit its scope for network upgrades and expansion, which may hurt operations over the long term. Additionally, the company has a debt-laden balance sheet, negative operating cash flow and has been witnessing losses since 2007.

Sprint currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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