The third-largest U.S. wireless carrier Sprint Nextel Corp. (S) deployed its first multi-mode base station in Branchburg, New Jersey. This marks a milestone move in the company’s Network Vision strategy, which serves as a major catalyst in its growth plan.
Under the Network Vision strategy announced last year, Sprint will consolidate multiple incompatible networks (CDMA and iDEN) into one platform, supporting multiple technologies (3G and 4G) and spectrum bands (800 MHz, 1.9 GHz, 1.6 GHz and 2.5 GHz).
The company expects the full Network Vision deployment to be over by year-end 2013. Moreover, Sprint Nextel would terminate its iDEN network in mid-2013.
Further, the company is replacing its iDEN network on CDMA-based phones with a new version of Nextel's "push-to-talk" feature from Qualcomm Inc. (QCOM). The Sprint Direct Connect push-to-talk feature is expected to grow rapidly early next year to match the current CDMA voice coverage area.
As part of the Network Vision strategy, Sprint is switching to the 4G Long-Term Evolution (LTE) technology from the current 4G WiMax (a wireless broadband technology) network. The company uses Clearwire Corporation’s (CLWR) WiMax network in the 2.5 GHz band to provide high-speed services. With the rapid growth of LTE service offerings, Sprint plans to launch its own 4G LTE networks in the 1.9 GHz band in mid-2012 and expects to complete the deployment by year-end 2013.
The coverage will likely touch more than 120 million by the end of 2012 and 250 million by 2013. To build its own 4G LTE networks, Sprint inked a 15-year deal with LightSquared in July.
The Network Vision plan would reduce roaming charges and the costs associated with the Nextel network. Additionally, it would lead to the efficient use of capital, reduction of cell sites, the elimination of dual networks, backhaul efficiencies, reduced churn, and energy cost savings. Network Vision will likely generate $10 billion to $11 billion in savings over the next seven years (2011–2017).
However, as much as $4–$5 billion is estimated to be expended over two to three years in collaboration with Alcatel-Lucent (ALU), LM Ericsson Telephone Co. (ERIC) and Samsung. No doubt, this investment will dilute Sprint’s free cash flow over the next two years. Network Vision will also pressure OBITDA by as much as $1 billion in 2012 and by $100 million in 2013 before contributing in 2014.
We currently maintain our long-term Neutral recommendation on Sprint. For the short term (1–3 months), the stock retains a Zacks #3 Rank (Hold).
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