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Sprint posts big loss, but adds subscribers, bumps up LTE

Unless Deutsche Telekom AG's (ETR:DTE) T-Mobile USA pulls off a whopper of an earnings surprise later this month, Q4 2012 was a remarkably gloomy quarter for the U.S. cellphone industry.

I. Passing Grades for Sprint, Verizon -- a Mostly Bad Quarter for AT&T

Sprint Nextel Corp. (S) followed competitors AT&T Inc. (T) and Verizon Wireless -- the joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD) -- in reporting its earnings for the fourth calendar quarter of last year.

The results, compared and contrasted to AT&T and Verizon can be seen below:

 Q4 2011 carriers
Sprint had a quite a decent quarter compared to its competitors.  While they all lost money, it was Sprint who posted the biggest percent gain in subscribers, the carrier's biggest growth since 2005.  

Overall, roughly 720,000 of the new customers (40%) were iPhone purchasers.  This offered somewhat of a vindication of its high-risk strategy of taking on deep debt obligations to get the iPhone from Apple, Inc. (AAPL).  While Sprint came in second to Verizon in revenue gains, it posted a far smaller net loss.

As a side note, Sprint reported 1.8 million iPhones sold -- a number that surpassed analyst expectations, but matched (precisely in sig. figs.) my estimate from last month. Coupled with the sales successes at Verizon and AT&T, this emphasizes just how victorious the iPhone 4S was in the U.S. in Q4 -- a surge that helped the U.S. smartphone maker pass Samsung Electronic, Comp., Ltd. (KS:005930) in total 2011 smartphone sales.

Sprint iPhone
Sprint's iPhone is selling well and defying the skeptics. [Image Source: Sprint]

However, there were some extenuating circumstances that contributed to its competitors' misfortune and may be making Sprint outlook look slightly rosier than it really was.

First, Verizon took a large pension charge and another one-time charge, which in turn plunged it into a relatively large lost.  Likewise, AT&T's larger loss comes from the $4B USD it wrote off when the T-Mobile deal collapsed.  The loss covers some of the billions in cash and spectrum that AT&T owes T-Mobile under the negotiated terms of the failed deal.  While it's unwise to say that AT&T and Verizon will be immune to future large losses, it's fair to say that their balance sheet looked worse than it really was.

And overall, it's important to keep in mind that all the carriers posted large losses in the quarter.

II. Sprint Charges Ahead With LTE

In related news Sprint showed that its wisely taking the necessary steps to build up an LTE (4G) network to stay competitive with AT&T and Verizon.  Sprint initially had backed the WiMAX standard, a rival 4G specification that now looks to be going the way of the dinosaur.

Sprint just announced two new cities for the program -- Baltimore, Mary. and Kansas City, Kans./Miss.  The network had previously announced that Dallas, Houston, and San Antonio, Texas along with Atlanta, Georgia would be the first cities to receive LTE.  Now it looks like a six-city rollout is planned for "mid-2012".

Despite the loss of a potential $15B USD payday from LightSquared -- who now is facing ethics investigations over campaign contributions to President Obama -- Sprint is still hoping to scrape together enough cash to hoist a decent LTE network mid-year.

It announced a trio of devices that would be on the network -- the popular Samsung Galaxy Nexus (also on Verizon) and the new LG Viper LTE from LG Electronics Inc. (KS:066570).
Galaxy Nexus
The Galaxy Nexus [Image Source: Samsung]

The Viper is a new handset 4.0-inch all-touch Android 4.0 Ice Cream Sandwich handset that features a 1.2 GHz dual-core processor, but otherwise ho-hum specs.

LG Viper
The LG Viper LTE [Image Source: DroidMatters]

Sprint will also be offering a tri-capable hotspot from Sierra Wireless, Inc. (SWIR) that's capable of handling 3G, "4G" (Sprint's name for WiMAX), and "4G LTE".

Company Senior Vice President Bob Azzi cheers the coming offerings, stating, "Sprint is investing in its CDMA network and delivering on our commitment to ensure customers experience superior wireless voice and data service at an unbeatable value."

III. T-Mobile's German Owner Plans to Beef Up Carrier for Survival Bid

With an estimated $3B USD in (almost) free cash in pocket from AT&T, and additional $1B USD worth of spectrum and roaming privileges also in hand, Deutsche Telekom -- the parent of T-Mobile USA -- is starting to think that its U.S. property may be capable of independent survival, after all.

The carrier is reportedly is planning a major (in the billions) sale of debt (bonds) to fund T-Mobile's growth and network expansion.

Currently T-Mobile is in distant fourth, although the exact numbers won't be known until 2/20/2012, when T-Mobile USA gives its earnings guidance.  The carrier previously had an estimated 33.8m subscribers -- roughly 40 percent less than Sprint, and only (appr.) a third of the subscribers of Verizon/AT&T, each.

T-Mobile is luring some customers in offering free "4G" phones, but the offer is deceptive as you're getting an outdated HSPA+ device.  T-Mobile thus far is the only major U.S. carrier not to have announced plans for (or deployed) LTE -- true "4G".

Sources: Sprint [1], [2], AT&T, Verizon

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Such a waste
By tayb on 2/8/2012 4:33:30 PM , Rating: 2
We have 4 different carriers building out identical networks and blanketing the same exact cities with the same exact technology. What a waste of money. Can't we get some cooperation or something among carriers for the benefit of everyone? They are all bleeding cash building out identical copies of each others networks.

RE: Such a waste
By sprockkets on 2/9/2012 12:45:43 AM , Rating: 2
Then you'll have Reclaimer claiming you are a socialist when sprint wants to piggy bank on other carriers.

Actually it is good they do this to prevent any one carrier from having too much control.

RE: Such a waste
By Samus on 2/9/2012 1:10:06 PM , Rating: 1
In most other countries, the government owns the infrastructure and licenses it to private companies to use.

This way everything is standardized and you can choose a carrier based on phone preferences, support, and price. All carriers theoretically have the same coverage and service quality, which is generally regarded as excellent compared to the United States where each carrier manages their own networks with different coverage and quality in different geographical locations.

Unfortunately such a schema would never work here because of all the people crying for a "smaller government" to stay out of the "private sector" when these are the same people who ironically cry that the government should be able to tell a women what she can and can't do with her vagina. Hypocrites.

RE: Such a waste
By bankerdude on 2/9/2012 3:17:07 PM , Rating: 1
I'm picturing what a woman can do with her vagina involving a cell phone......

RE: Such a waste
By Samus on 2/9/2012 3:52:24 PM , Rating: 2
I'd patent that before Apple does...

RE: Such a waste
By name99 on 2/10/2012 2:27:11 PM , Rating: 2
It's not clear to me that this is actually a reasonable claim.

(a) We (pretty much the whole world) have FINALLY agreed upon a single standard for wireless. WiBro is struggling on in South Korea but looks doomed; LTE-TDD (China) is basically a minor variant on LTE-FDD (most of the rest of the world); and while frequencies aren't harmonized, adapting the rest of the LTE stack to a new frequency is fairly minor work.
So point is --- intellectual effort is not being wasted.

(b) Most people in the US live in big cities; and most people in the US feel that their cell services are under-provisioned. So it's not like excess, unused capacity is being rolled out.

So the question is --- is it "inefficient" to have 4 companies create a collection of towers, rather than have one company create a collection of 4x as many towers? It's not at all clear to me that it is.

There are obviously a few efficiencies that come from a single unified system, with the ability to smooth out areas of excess service and areas of deficient service but these are fewer than you might expect because the primary issue is possible locations for cell towers given all the various constraints (people who don't want a tower nearby, visual issues, safety issues, protection from the elements or hooligans, etc etc). And against these we have the fact that (limited as it is) there is SOME competition between the carriers, and some incentive for each to work harder.

One of the current buzzwords in the cell space is SON --- self-organized-network. This is not something seen at the user level; it is a set of ideas and standards that exist in the specifications for new tower and telco equipment; and these get updated (just like the user specs) with each new release of LTE (and 3GPP) specs --- release 10, release 11, release 12, they just keep on coming.

The first of these SON specs specified pretty low-level stuff (some of which seemed so obvious you have to wonder what these people were thinking before-hand, like "automatic software updates" [these are software updates to tower equipment, not phone]). But the specs are getting more ambitious in terms of information that is transferred between towers about load, users near the cell edge, etc; and the goal --- to be realized in a few years --- is to allow cells to co-ordinate much more aggressively so as to spill overload from one cell to a nearby less loaded cell, or alternatively for two cells to combine signals to deliver a single better signal to a user at the edge between them.

The point is
(a) I see no evidence that competition in this particular case is bad. (And this comes from someone who would never vote Republican and would probably be considered a socialist by most Americans).
(b) Regardless of how greedy and dumb the telco execs are, the underlying engineering is getting better all the time. And this better engineering does make it out from ideas into equipment into the field. It just takes time, and we are at that unfortunate period that some technologies go through where growth has just been so explosive that everybody's experience is pretty irritating.

"Out-dated" HSPDA
By aebiv on 2/8/2012 5:12:56 PM , Rating: 2
I get a nice 14Mbps download here on my "4G" with T-Mobile. Honestly, that's fast enough for me, and I get great battery life.

I have absolutely NO desire for an LTE phone, as using LTE does nothing but suck the battery dry instantly.

Really, HSPDA is enough, I'd much rather them put up more HSPDA/3G locations than invest in LTE in a race to "who can hit the data cap the fastest."

RE: "Out-dated" HSPDA
By mevans336 on 2/10/2012 1:31:33 AM , Rating: 2
I'll put my LTE experience against your HSDPA experience any day of the week. That's what matters on a handset after a few Mbps, not raw throughput. I had an HSDPA handset, now I have an LTE handset. It's night and day.

To be fair, standard 3G versus HSDPA was also a night and day feeling. So I can see how you would be led to believe HSDPA is awesome, even though it's really not.

RE: "Out-dated" HSPDA
By mevans336 on 2/10/2012 2:21:06 AM , Rating: 2
Bionic connected via WiFi on a 30/30 Fiber Line:

Bionic connected via LTE (3 of 4 bars):

Laptop connected via same WiFi:

For a direct comparison:

RE: "Out-dated" HSPDA
By name99 on 2/10/2012 2:34:03 PM , Rating: 2
Look, it's NOT ABOUT reaching higher peak speeds. It's about better spectral efficiency, better use of the available frequency bands so that MULTIPLE users all get decent speeds.

You might enjoy your 14Mbps max speed today --- but when there are a hundred people in your cell, ALL trying to connect to the internet, you're going to see 140kbps --- and that's assuming everyone is near the cell center, of course most people are near the cell edge and see a lot worse. Most of this fancy technology --- MIMO, QAM-64, OFDM etc --- isn't so that a single person can hit 100Mbps; it's so that
(a) there IS a pie of 100Mbps that can be shared by multiple users and
(b) the experience at the cell edge is a lot better than it is today.

Yes, LTE chipsets drain the battery today. You think it will stay that way forever? Are you completely ignorant of the entire history of the solid state electronics industry?

By apinkel on 2/8/2012 4:03:18 PM , Rating: 2
Yeah, the big three are having to throw a ton of cash at 4G build out right now so I guess seeing a lot of negative numbers shouldn't be too surprising.

The next 12 months will really be critical for AT&T and Sprint... both have a long way to go to catch up with Verizon's huge lead in LTE.

I don't envy T-Mobile... I just don't see a great way forward for them. Kinda bites since I like the added competition they brought to the table.

Edit Needed
By JBird7986 on 2/8/2012 4:05:08 PM , Rating: 2
Just a heads up:

"In related news Sprint showed that its wisely taking the necessary steps to build up an LTE (4G) network to stay competitive with Sprint and Verizon. "

I think that you guys meant AT&T and Verizon.

Competitive with itself?
By highlnder69 on 2/8/2012 5:42:48 PM , Rating: 1
"In related news Sprint showed that its wisely taking the necessary steps to build up an LTE (4G) network to stay competitive with Sprint and Verizon . Sprint initially had backed the WiMAX standard, a rival 4G specification that now looks to be going the way of the dinosaur."

So Sprint is taking necessary steps to stay competitive with itself and Verizon? Or should it be AT&T and Verizon?

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