* Sprint using half spectrum capacity of rivals in upgrade
* May be forced to abandon flat-fee unlimited data
* Company says unlimited data will not constrain capacity
By Sinead Carew
NEW YORK, Nov 25 Sprint Nextel (S.N) may be
forced to abandon the biggest advantage it has over its rivals
- unlimited data services for a flat fee - because of heavy
data users and a shortage of wireless airwaves.
Moreover, the increasing likelihood that AT&T's plan to buy
T-Mobile USA, the nation's fourth-largest mobile operator, will
fail may have the paradoxical result of making Sprint's
position even more untenable, according to analysts who follow
all three companies.
Sprint, the nation's third-largest mobile service provider,
is planning to upgrade its network with the latest mobile
standard, Long Term Evolution. But it is launching that service
with only half the wireless airwaves bigger rivals Verizon
Wireless (VZ.N) and AT&T Inc (T.N) have assigned, leading
experts to suggest that the popularity of Sprint's unlimited
data plan could put a strain on the network or slow down Web
Sprint has assigned just 10 megahertz of spectrum for the
launch compared with its rivals' 20 megahertz, analysts say. It
will have to reassign airwaves being used for other services in
order to expand its capacity for LTE.
Unlike AT&T and Verizon, which cap data use to stem
overcapacity issues brought on by heavy users, Sprint is the
only big U.S. carrier still selling unlimited data for a flat
fee to users of smartphones, including the Apple Inc (AAPL.O)
iPhone, on its current network.
"It's a very bare-bones implementation of LTE," said Tolaga
Research analyst Phil Marshall. "The risk is, if you don't have
headroom as your LTE subscriber base grows, then the speeds
will go down."
In that situation, Marshall does not see Sprint being able
to continue to offer unlimited services.
"Unlimited is going to kill them," he said. "I think
they're going to have to back off from the all-you-can-eat
Unlimited data is a strong selling point for Sprint, which
has been struggling for years to retain customers. For Sprint
to keep the marketing advantage it has over rivals, one option
could be for it to institute usage caps that are considerably
higher than those of its competitors.
"That's a lever they can play if they run into being
constrained," said an industry source who asked not to be named
due to a lack of authorization to speak publicly. "It's
inevitable that they will eventually have to put caps (on their
SPRINT: NO HEADACHE
Sprint, which is spending $7 billion to upgrade its network
to LTE by the end of 2013, says concerns about its capacity are
overblown, arguing that advanced technology allows it to make
the most of its spectrum resources. Bob Azzi, a Sprint
executive in charge of the company's network, said the
company's plans assume that it will keep its unlimited data
service during the LTE rollout.
"I don't consider it a headache," he told Reuters, "We have
a good understanding of the nature of those plans and what they
Azzi added that the section of the 1,900 megahertz spectrum
band Sprint has set aside for LTE is currently unused. He also
plans to reallocate spectrum in its 800 megahertz band to use
for the high-speed service by early 2014, provided it can
secure regulatory approval to do so. That spectrum is currently
being used by the aging iDen service Sprint hopes to shut down
Sprint is also in talks with Clearwire Corp CLWR.O, its
majority-owned venture, about expanding their partnership to
cover LTE. Sprint currently depends on Clearwire's network for
its fastest service based on WiMax technology, and the latest
talks are aimed at allowing it to piggyback on Clearwire's LTE
to help it boost capacity in the "hottest of hotspots" by 2014
when Azzi says Sprint will need more capacity.
But the future of Sprint's tempestuous relationship with
Clearwire is murky since it is not yet certain if Clearwire
will raise the roughly $1 billion in new funding it needs to
upgrade its network to LTE.
Clearwire lost one-third of its value after Sprint said on
Oct. 7 that a bankruptcy filing by the company could be
"constructive." [ID:nN1E79C0DI] Clearwire shareholders again
fled on Nov. 18 after the company said it may skip a debt
interest payment due Dec. 1. [ID:nN1E7AH1EK] Many analysts saw
that pronouncement as a negotiating tactic to try to force
Sprint's hand into an agreement with favorable terms for
One investment manager described the Clearwire/Sprint
relationship as a "soap opera" that will end with an agreement
because they are both heavily dependent on each other.
"In the short term Sprint doesn't need them beyond (WiMax)
but they do need them later," said the manager, who asked not
to be named.
Even if Sprint and Clearwire reach an agreement, however,
Bernstein analyst Craig Moffett is skeptical about how much it
would help because of the frequency Clearwire's spectrum is on,
which he said causes signal problems within buildings.
"Now that the person next to you at the conference table is
surfing away on Verizon ... the shortcomings of Clearwire
become painfully apparent," Moffett said.
Moffett also noted that even if Clearwire upgrades its
network, it will still have coverage for only about one-third
of the U.S. population because it would need to raise a lot
more funding than it is currently seeking to extend its network
into new markets.
Since Sprint has already had to tap capital markets for $4
billion in debt and needs up to $3 billion more in funding for
its own network upgrade, analysts are skeptical it can come up
with the money to help Clearwire expand further.
"What are you going to do with the (rest) of the United
States? You can't just limp around on one leg," said Moffett,
who has a "hold" rating on Sprint due to the uncertainty around
The uncertainty around AT&T's deal for T-Mobile USA is
another big wrinkle in the Sprint story. On Thursday, AT&T
withdrew its application for deal approval with the Federal
Communications Commission, saying that it would focus on its
legal battle with the Department of Justice. [ID:nL5E7MO18Z] If
that deal is approved, it leaves Sprint as a distant No. 4. But
if it is blocked, as many analysts now expect, T-Mobile USA may
look for another partner, according to the investment manager.
Instead of forging a deal with Clearwire or Sprint, Moffett
suggested that T-Mobile USA would instead turn to U.S. cable
operators such as Comcast Corp (CMCSA.O) and Time Warner Cable
TWC.N. Some investors had hoped these companies would come to
Sprint's aid as they are part-owners in Clearwire. But since
the cable operators have unused spectrum in the same band as
T-Mobile USA, Moffett suggested that the cable providers would
instead create a partnership with that company if it has to
abandon the AT&T deal.
Sprint has loudly opposed the AT&T/T-Mobile USA deal, a
position that Moffett said was against its best interests.
"Now Sprint loses its logical partners in the cable
operators," said Moffett, who described a potential
cable/T-Mobile deal as a "match made in heaven."
Moreover, some analysts said that the $6 billion breakup
package AT&T will have to pay T-Mobile if the deal fails would
make T-Mobile into a more formidable rival to Sprint in the
market for cost-conscious mobile consumers.
The uncertainty means that Sprint does not "know exactly
how desperate they are at any given point in time," said the
investment manager, noting that Sprint's $2.38 share price
speaks volumes about investor confidence in the operator's
"It shows there's not a whole lot of faith out there that
they'll be able to successfully execute on these things,' this
(Reporting by Sinead Carew; editing by Peter Lauria and
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