Sprint Opex strategy delivers, but revenue dips

Sprint network and cost strategySprint has reported operating revenue of $8.239 billion in December quarter of 2017 against $8.549 billion in the same period in 2016 – mainly due to lower sales from its services.

Sprint has generated service revenue of $5.930 billion against $6.323 billion – showing its inability to compete with rivals such as AT&T, T-Mobile and Verizon. Sprint has generated equipment revenue of $2.309 billion against $2.226 billion – indicting its success in selling phone bundles.

The main focus of SoftBank was in cost cutting programs to ensure stability in the business of Sprint ever since the merger discussion with rival T-Mobile was called off.

Sprint has saved $260 million in cost of services and selling, general and administrative expenses. The $260 million cost cutting excludes approximately $100 million towards hurricane-related and other non-recurring charges.

Sprint said the year-to-date reductions of more than $1 billion were primarily driven by changes to the device insurance program, as well as lower network expenses.

Sprint CEO Marcelo Claure and the top management team should be able to celebrate this time after attracting 256,000 post-paid customers and 63,000 pre-paid customers to the network in the third quarter of fiscal 2018.

“Sprint has now added postpaid phone customers for 10 consecutive quarters and added prepaid customers for four consecutive quarters,” said Sprint CEO Marcelo Claure. “This momentum, along with a continued focus on the cost structure, is driving improvements in profitability metrics and adjusted free cash flow.”

“Though Sprint trailed its Tier 1 competitors in post-paid phone net additions, the US carrier continues proactively ensuring it remains the pricing leader within the post-paid market to appeal to cost-conscious customers,” said TBR analyst Steve Vachon.

The main strategy of Sprint was to offer free Hulu subscriptions to post-paid unlimited data customers to take on rival mobile video promotions such as T-Mobile’s Netflix on Us and AT&T’s DirecTV bundles.

Sprint currently offers the lowest entry-level post-paid price point at $40 by offering tiered data options to new customers, who are not interested in unlimited data plans.

Sprint faces challenges in post-paid market due to increase of 14 basis points in phone churn rate to 1.71 percent. TBR said post-paid phone churn will escalate this quarter as introductory rates expired for customers enrolled in Sprint’s Unlimited Freedom and “50 off” promotions in January.

The company expects cash capital expenditures, excluding devices leased through indirect channels, to be at the low end of its prior expectation of $3.5 billion to $4 billion during the full fiscal year – showing the lack of interest in spending on telecom network.

“Providing optimal network quality will be essential for Sprint to retain subscribers after introductory rates expire,” Steve Vachon said.

Sprint in November announced that it will increase network Capex to upward of $6 billion in FY18, compared to anticipated spending in FY17 of around $3.5 billion.

Sprint’s investments will include building towers over the next two years as the carrier will prioritize macrocell deployments to improve wide area coverage while continuing to roll out Magic Boxes, likely upward of one million over the next several years, to enhance signal quality for specific residents and businesses, TBR said.

Sprint will also leverage recent strategic agreements with Altice and Cox Communications to accelerate its network densification initiatives while reducing deployment costs.

Baburajan K