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Bloomberg's Butler: Cautious of Sprint's Network Upgrade(Audio) · Bloomberg Intelligence

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  Speaker 1: And that's a Bloomberg business flash. You're listening to taking
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  Speaker 1: stock with Gods and Pim Fox on Bloomberg Radio. Sprint
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  Speaker 1: the shares of Sprint while they sprint it higher today
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  Speaker 1: by more than five percent. Let's find out why we've
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  Speaker 1: got John Butler, senior Telecom's analysts for Bloomberg Intelligence. John
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  Speaker 1: always a pleasure. Thanks, I'm great. You know, I would
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  Speaker 1: imagine that many investors in Sprint are feeling a little
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  Speaker 1: good today, although you know it's been a rough ride
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  Speaker 1: for them. Tell me what's going on in Sprint. They
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  Speaker 1: talk about reducing capital spending us on, but what's the
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  Speaker 1: business like at Sprint? Yes, Sprints. Sprints a complex story.
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  Speaker 1: It's the underdog in the space. It's the fourth largest
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  Speaker 1: carrier in the US. They're undergoing two things at once.
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  Speaker 1: They're doing a large network nationwide upgrade. I use their
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  Speaker 1: greatest asset, which is this high frequency two point five
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  Speaker 1: gigger hurt spectrum. And it's a complex upgrade because high
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  Speaker 1: frequencies like that don't travel very far, but they carry
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  Speaker 1: lots of data, and as you go down to lower spectrum,
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  Speaker 1: it goes much further in terms of transmission distance, but
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  Speaker 1: it doesn't carry as much. So Sprint is upgrading cities
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  Speaker 1: with this high frequency spectrum. Uh At the end of
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  Speaker 1: the day, they want to market at as having the
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  Speaker 1: fastest network in the US, and they may have a
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  Speaker 1: good shot at that. Concurrent with that network upgrade, they're
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  Speaker 1: doing a pretty major restructuring at the company. They're trying
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  Speaker 1: to take two billion in costs out of the operation.
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  Speaker 1: I have to say that part of the story is
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  Speaker 1: playing out very well. Um. They're on track to do
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  Speaker 1: to have all two billion out of the business a
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  Speaker 1: year from now by the end of next March UM
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  Speaker 1: and are on track to do that. Uh So it's
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  Speaker 1: an interesting story and it's a story that continues to
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  Speaker 1: get better. The one thing I'm worried about, we heard
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  Speaker 1: this today on the conference call, is that they're building
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  Speaker 1: out that high frequency spectrum using what are called small cells.
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  Speaker 1: So they're putting in these mini cell sites along city blocks,
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  Speaker 1: on rooftops all that, and the it's it's killer trying
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  Speaker 1: to get these municipal rights away. And so they've had
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  Speaker 1: delaze there which is pushing out the capital spending, which
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  Speaker 1: means the the actual upgrade of the network, and those
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  Speaker 1: plans are getting pushed out a bit to next year,
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  Speaker 1: which is not to say it's not going on, but
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  Speaker 1: we're having a push out, which is never good for
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  Speaker 1: any stock. So, John, you talk about taking two billion
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  Speaker 1: dollars of costs that I want to hear more about this,
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  Speaker 1: this very ambitious project, But two billion dollars out of
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  Speaker 1: a company? How many workers can you lay off? What
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  Speaker 1: was so redundant? It's just it's it's mind boggling. Well,
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  Speaker 1: you know, it's hard to believe until you go out
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  Speaker 1: to visit Sprint in Kansas City. They have a massive
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  Speaker 1: campus out there, um, and they were once a much
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  Speaker 1: larger carrier, and so they need to right size this
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  Speaker 1: organization in line with the current revenue run rate um.
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  Speaker 1: You know, and I frankly I think they'll do it.
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  Speaker 1: There's lots of areas where you can take out cost.
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  Speaker 1: It's very expensive to run a telecom network. As you
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  Speaker 1: lose subscribers and you get smaller because you're losing share,
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  Speaker 1: you can, as you alluded to Kathleen, you can reduce personnel.
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  Speaker 1: Uh in terms of the campus. I know they've been
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  Speaker 1: leasing parts of the campus to third parties and reducing
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  Speaker 1: their footprint out there. Um, they don't share a whole
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  Speaker 1: lot in terms of specifics, in terms of where they're cutting,
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  Speaker 1: in what they're doing. I do know this. They turned
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  Speaker 1: to every line manager in Sprint and said, we want
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  Speaker 1: you to come back to us with a plan on
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  Speaker 1: how you would cut x per cent of costs. I
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  Speaker 1: forget what the percent was. So it really is an
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  Speaker 1: organization wide effort at Sprint. And you know, Uh, the
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  Speaker 1: CFO was speaking recently, not on the call today, but
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  Speaker 1: I heard him recently, and he said, we have identified
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  Speaker 1: every single area where we're going to take costs out,
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  Speaker 1: so we know where that two billion dollars is coming from.
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  Speaker 1: It's really just a matter of time to execute on that.
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  Speaker 1: You can't do it all at once. Hey, John, you
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  Speaker 1: know you mentioned that two point five giga hurts UH
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  Speaker 1: spectrum that Spring has, right and right. I don't want
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  Speaker 1: to get two geeky on all this, but there is
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  Speaker 1: an auction that is coming up at the end of
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  Speaker 1: the month and it has to do with low band spectrum, right,
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  Speaker 1: So just explain to people this low band spectrum, uh,
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  Speaker 1: maybe easier, right, I mean, it can travel, as you said,
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  Speaker 1: longer distances, and it also penetrates buildings better than the
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  Speaker 1: higher band spectrum. And that PIM is a very key point.
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  Speaker 1: Spectrum has different properties depending on where you are in
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  Speaker 1: the electromagnetic spectrum. In this case, we're talking about radio waves.
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  Speaker 1: You know, as we move into a data centric world,
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  Speaker 1: those higher frequencies are gaining in value because people want
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  Speaker 1: fast download speeds, but the reality is they also want
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  Speaker 1: service when they're in building. The early cellular networks were
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  Speaker 1: built with that low frequency spectrum. It was given to
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  Speaker 1: mobile carriers. It was also given to broadcasters who were
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  Speaker 1: broadcasting analog signals. Remember analog TV PIM And so analog
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  Speaker 1: takes up a much bigger, larger amount of spectrum than digital,
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  Speaker 1: and so as they move to digital, there's free spectrum there.
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  Speaker 1: It's going up for grabs and it's a very valuable asset.
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  Speaker 1: Um T Mobile is the one that needs that low
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  Speaker 1: band the most. They are going to be most aggressive
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  Speaker 1: in this auction a T and TM Verizon have the
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  Speaker 1: most in their portfolio, and Sprint is setting it out
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  Speaker 1: because they just don't have the money. So all right,
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  Speaker 1: John Butler thank you so very much. Joining us from
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