Sprint Plans To Move Equipment off Towers Leased From Crown Castle, American Tower, Re/code Reports
Sprint is planning to overhaul its cellular network by moving radio equipment off towers it currently leases from Crown Castle and American Tower and onto towers located on government-owned property, an article published Friday by Re/code said. Sprint had previously said it would cut nearly $2 billion in operating costs and $500 million in equipment spending (see 1510090027). The article said the tower equipment relocations process could begin as early as June or July.
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The news got mixed reactions from industry analysts Friday, with some seeing a potential upside for Sprint, and others expressing skepticism a network restructuring will be truly beneficial. Jennifer Fritzsche, Wells Fargo senior analyst, said in an emailed statement the news of Sprint's reported plans is "raising a lot of eyebrows," and more details are needed to know how it might affect the company's financial outlook because it's operating under multiyear contracts with both American Tower and Crown Castle. "The plan is in line with [Sprint's] prior commentary," Fritzsche said, saying Sprint should be careful to avoid "mistakes of the past, where network overhauls caused major disruptions in the network's performance." Checks on its network "would suggest Sprint has made significant improvements" on the network side, which should help with "brand repair," she said, and cost savings under the reported plan would be a "significant positive." But Fritzsche said any negative impact of the infrastructure move on the network or consumer experience "would be a major step backwards on the recent progress [Sprint] has made."
"Penny wise, pound foolish," is how Roger Entner, Recon Analytics analyst, described Sprint's supposed decision to restructure its network. "I think the downside is significantly higher than the upside," Entner told us Friday. When building out a network, Sprint can certainly look for cheaper tower options, Entner said, but moving around pieces of its network and terminating existing contracts with the tower companies "isn't the right way to do it." Sprint will incur "early termination fees" if it decides to relocate radio equipment from towers currently under contract, Entner said, and could negatively alter the wireless coverage it provides. "If they don't really watch out, coverage holes will appear," he said, and "customers don't like surprises." Entner also said a move to primarily government-owned tower sites means less of a chance at finding land in the Eastern part of the country and in major urban markets, because the government "is not a huge landholder" in those areas.
Sprint's reported plans to switch up its network infrastructure could be worse for some tower companies than others, and could affect SBA Communications -- not just American Tower and Crown Castle -- as well, said Evercore ISI Analyst Jonathan Schildkraut in an email Friday. "We believe this could be worse for [Crown Castle and SBA] over the short-term vs. [American Tower]," he said. American Tower has the "lowest exposure" to Sprint at 12 percent, as opposed to the 19 percent exposure of both Crown Castle and SBA, and has "long-term co-terminus leases with Sprint" with five or more years remaining. SBA and Crown Castle may have shorter leases on towers with Sprint, which could mean some "potential terminations near-term," Schildkraut said. As for how the move will affect Sprint, Schildkraut said it is a "possible positive," and would underscore the company's commitment to improving its cash flow. But, Schildkraut said he anticipates "meaningful disruption during the network transition process."
Re/code also reported Sprint plans to reduce its dependency on fiber backhaul through cables owned by AT&T and Verizon. Sprint, Crown Castle and American Tower didn't comment Friday. Sprint's stock price fell 10.03 percent Friday to $2.87 on news of the network restructuring.