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Sprint

Sprint (US)

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Sprint is currently the #4 national wireless service in the US behind AT&T, Verizon and T-Mobile USA and also a leading provider of long-distance fixed line services. It was formed in 2005 from the merger of what were previously two separate but competing companies, Sprint and Nextel. The group also operates prepaid services Boost and Virgin Mobile. Sprint's local fixed line services in selected states were spun off to shareholders in 2006 as what is CenturyLink, but it still has a long distance wireline division. Despite initial hopes that the Nextel merger would allow the enlarged business to compete more effectively with its main competitors, Sprint's performance steadily declined over the next couple of years as customers jumped ship to other suppliers. There was finally a glimmer of light at the end of the tunnel in 2011, as the rate of loss especially among valuable contract customers slowed, allowing the group to report its first operating profits after years of deficit. The following year, Japanese mobile company Softbank made a surprise bid to acquire control of the business for around $22bn. Additional potential mergers have been discussed since then. Talks have continued on and off with T-Mobile USA since 2013. These finally reached fruition in 2018 with an agreement for T-Mobile to acquire Sprint for around $26bn in stock. That arrangement faced a rough ride from a succession of different regulators, but was finally cleared in Feb 2020.

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Click here for agency account assignments from adbrands.net. Sprint declared advertising expense of $1.1bn for ye 2018.

Competitors

See Telecoms Sector for other companies

Brands & Activities

In October 2012, Japanese mobile operator and investor Softbank agreed a complex deal to acquire majority control of what was then Sprint Nextel. In the largest ever overseas deal for a Japanese company, Softbank agreed to pay around $20bn for a 70% stake in the American carrier. Softbank is the #3 mobile service in Japan by subscribers, with 25% local share in 2016. (It acquired what was previously Vodafone Japan in 2006). The group also has several large investments in internet companies in Asia including Yahoo Japan and Alibaba of China, and now controls mobile game developer Softcell. However, Softbank's original deal was itself trumped in April 2013 by a rival offer from US pay TV service Dish Network, which proposed acquiring Sprint for $25.5bn and merging the two companies to provide an integrated TV and telephony group. Yet the Dish proposal lacked substance and was eventually declined by Sprint's board, despite the larger price. Softbank clinched the deal by raising its own offer with a higher element of cash for existing shareholders. The final price paid was $22.2bn, for 80% of equity. The remaining shares are still publicly held.

Wireless

Sprint Nextel had itself been created from the earlier merger of those two separate services in 2005. Subscriber numbers for the combined unit peaked at 54.8m subscribers by the end of 2007, making it a clear #3 in the market, still well ahead of the next largest mobile service, T-Mobile. However that number was only 1% higher than at the end of December 2006, despite considerable expenditure on marketing and the acquisition of additional regional services. For the next few years, that number steadily declined as a result of defections to other carriers, especially from the Nextel service. A key difficulty was Sprint's inability to offer the most popular new handsets, which tended to be snapped up for exclusive deals by market leaders AT&T and Verizon. The biggest losses were among more valuable contract customers, almost 9m of whom moved elsewhere between 2007 and 2009, although that decline was partly offset by a rise in pre-paid. Total customers fell to a low of 48.1m at the end of 2009.

Finally, there was the beginning of a slow but steady rebound in 2010 as pre-paid gains finally overtook post-paid losses, and total users finally surpassed 2007's total in 2011. That year, the group finally got its hands on supplies of Apple's iPhone for the first time, a major victory in its battle to compete on equal terms with AT&T and Verizon. Another major victory was the collapse of AT&T's plans to acquire smaller competitor T-Mobile USA. Had that deal been completed it would have left Sprint as the weakest by far of just three national operators. In 2014, Sprint began negotiations of its own with T-Mobile USA but these eventually foundered in the face of implacable opposition from regulators, who were insistent on maintaining four national mobile carriers. Sprint was finally overtaken by T-Mobile as the #3 mobile network by total customers in 2015. It still has a higher number of post-paid accounts than its rival, and higher revenues. Several further attempts have been made to merge with T-Mobile, all so far without success; and there have also been fruitless talks with several other potential partners including Comcast and Charter.

Finally, in April 2018 a deal was reached with T-Mobile. Under the proposed arrangement, T-Mobile USA will acquire Sprint for around $26bn in stock. The combined business would be called T-Mobile USA and would continue to be led by its admired CEO John Legere. T-Mobile's controlling shareholder Deutsche Telekom would end up with a 42% stake in the business, while Softbank would have 27%. The remaining shares would be publicly held. The merged entity would manage around 100m direct customers on a proforma basis (excluding MVNO or wholesale users), around the same level as Verizon (currently 116m) and AT&T (93m). But - and it's a big but - regulatory approval is by no means certain.

Sprint controls a nationwide network offering a full range of voice, data, wireless and fixed line services. Although the merged entity carries the names of both its constituent parts in its legal name, and was billed as a merger of equals, the Sprint brandname has always occupied a position of clear seniority. By March 2017, the group served a total of 59.7m customers, of whom 31.6m were post-paid, 12.0m pre-paid and the remaining 16m through resellers. The remainder were through wholesale or MVNO relationships. The group has tried numerous different offers to build its percentage of postpaid customers. Among the more unusual was the launch of Sprint Framily in 2013, which allowed users to create a "friends & family" group of up to ten users, with incremental discounts. That was too complicated for most customers.

For now, the group offers several distinct branded services. Sprint wireless claims to have largest fully digital nationwide footprint in the US, offering services in more than 4,000 cities and communities. It markets a variety of different service packs to users, including a 3G multimedia service under the Sprint PCS Vision brand, music downloads, wireless photo and video and GPS positioning. In 2008, it introduced a new offer to customers, providing unlimited access to all its wireless voice, data and mobile broadcast services for a flat fixed monthly fee of just under $100. The brand is also promoted through a number of high-profile sponsorships, including positions as the official telecoms supplier to NASCAR racing and the NFL. However a four-year partnership with the NBA ended in 2015. In 2017, the group acquired a 33% shareholding in Tidal, the music streaming service controlled by rapper and entrepreneur Jay-Z.

Some Sprint customers are still served by regional affiliates, local wireless companies which own their own networks but use Sprint's wireless spectrum to transmit calls, and sell their services under the Sprint brand. Seven other former affiliates were bought by the combined group in 2005 and 2006. The largest of these were US Unwired of Louisiana, acquired for around $1bn; Gulf Coast Wireless and IWO Holdings for $287m and $427m respectively; and Alamoosa for $4.3bn in cash and assumed debt. However, integration of these companies also proved something of a headache for the group. Several thousand additional subscribers were acquired from regional operations of US Cellular in 2013.

Nextel remained a separate service until 2013. Like Sprint, it had traditionally reached some regional markets in the US via affiliates, operated by Nextel Partners, in which the company held a 30% shareholding. It was forced to buy out the other shareholders in Nextel Partners at the end of 2005 for around $6.5bn. Unlike Sprint, Nextel had also been able to extend its branded services beyond the US, into Canada, Mexico and some other Latin American markets via local partners. One major limitation was that, as one of very few operators in the world using Motorola's proprietary iDEN technology, it was unable to offer widespread roaming via partner networks. Among its most popular services was Nextel Direct Connect, a two-way "push to talk" walkie-talkie service which allows instant communication. In order to assist with the migration from Nextel to Sprint, the group replicated that walkie-talkie service on Sprint's CDMA network by adopting the QChat system developed by Qualcomm, pending an eventual wind-down of the service. By the end of 2012, Nextel's customerbase had reduced to just 2.1m users. It was eliminated altogether in June 2013.

Nextel brought with it to the merger a third brand, the prepaid youth-oriented service Boost Mobile. This continued to operate two services for a while: the main Boost Mobile service, still via the iDEN system, and a newer Boost Unlimited service on Sprint's CDMA. For several years, Sprint Nextel has also supplied wireless spectrum to partner companies who resell call volumes under their own brand. The best-known of these MVNO services was Virgin Mobile USA, a separately quoted joint venture between Sprint and Richard Branson's Virgin Group, offering prepay-only wireless services, mainly targeting the youth market. Sprint held a 13% shareholding, compared to Virgin Group's 28% and a 15% stake owned by SK Telecom of Korea. The remaining shares were publicly held. In 2009, Sprint agreed to take full control of the business in an all-stock deal valuing the smaller service at $483m. Virgin Mobile was merged with Sprint's existing Boost business, although it continues to operate as a separate brand. Another separate service is Assurance Mobile, offering free or ultra-low cost wireless to eligible welfare-supported customers.

Total revenues from wireless services and equipment were $31.8bn in ye 2017, with operating income of $9.81bn.

Broadband & Fixed Line

A key selling point for Sprint in the late 2000s was its leading position in high-speed wireless. In 2005, Sprint Nextel joined a strategic alliance with US cable operators Comcast, Time Warner Cable, Cox and Brighthouse, to offer customers a unified service offering cellular connections alongside fixed line telecoms, video and high-speed internet. This so-called quadruple play service allowed customers to access live broadcast content anywhere from their mobile handset, as well as shows they have pre-recorded on a home digital video recorder. Between 2006 and 2007 Sprint pledged to invest around $5bn to develop a national 4G wireless internet network based on next-generation WiMax technology. These plans were revised several times as a result of concerns on the part of shareholders, but were finally put underway in 2008 after other companies including Google, Intel and Time Warner agreed to invest in the venture. Sprint effectively terminated its own Xohm 4G system and instead, with the help of its supporting investors, acquired a majority shareholding in independent 4G developer Clearwire. This gave the company the ability to establish an MVNO service of its own, reselling Clearwire's service as the Sprint 4G network. It launched in selected urban markets at the beginning of 2010. More than just a phone service, it also allowed customers to boost their data connections and even other networks' mobiles using a mobile "hotspot" device. The group introduced the first 4G handset, the HTC Evo, in summer 2010. At the end of 2012, following the Softbank deal, Sprint began talks to acquire the 49% of Clearwire it didn't already own. A buyout of those shares was eventually tabled for $2.2bn; however that process was derailed at the beginning of 2013 following a higher rival offer for Clearwire from satellite broadcaster Dish Network. Like Dish's offer for Sprint itself, that challenge was also quashed when Sprint raised its bid to $3.7bn. The old WiMax network was shut down in favour of Clearwire's superior LTE system.

The group remains a leading player in fixed line long distance connections, serving residential and business customers nationwide. It has a worldwide voice and data network serving more than 100 countries, although it tends to concentrate its marketing efforts on multinational corporations headquartered in the US. Despite the uplift from broadband services, revenues from fixed line have steadily declined in recent years, falling to just $2.04bn by ye 2017.

Sprint Nextel's local fixed line communications division was spun off as an independent quoted company in 2006 under the name Embarq, offering local services in 18 US states, via around 7.7m local fixed lines, mostly in suburban and regional markets. Embarq was subsequently acquired by what is now CenturyLink. Sprint sold its directory publishing division in 2003 to RR Donnelly for around $2.2bn.

In 2015, Sprint agreed a partnership with the new private equity owners of failed electronics retailer RadioShack. Under this deal, around 1,440 outlets continue to operate as a standalone business under the joint Sprint and RadioShack banners, selling wireless contracts and prepaid handsets as well as a limited range of general consumer electronics merchandise. RadioShack's remaining stores were shuttered. The deal more than doubled Sprint's retail network.

Financials

For its first full year as a merged business, Sprint reported revenues for 2006 of $41.0bn. However performance steadily declined after that, slipping further for each of the following three years to a low of $32.26bn in 2009. There was the beginning of a recovery in 2010 with a modest increase to $32.56bn, and then again in 2011 to $33.68bn. The worst news, however, has been a series of massive charges for impairment and depreciation. The biggest of these came in 2007 for just under $39bn, essentially to write off the value of Nextel. That resulted in a full year loss of almost $29.6bn.

There have been additional large charges each year since, resulting in large continuing net losses. There is also the cost of maintaining the group's huge debts - almost $24bn by the end of 2012 - which cost over $1.4bn in interest during 2012. There was finally a glimmer of light at the end of the tunnel that year with the group's first operating profit for five years at $108m. However, it wasn't enough to prevent another net loss of $2.89bn, although that figure was an improvement on the previous year's loss of $3.46bn. A sharp increase in depreciation charges as well as higher product costs caused another jump in net losses for 2012, to $4.33bn, on revenues up 5% to $35.35bn.

There was no end to the red ink in 2013, although net loss for the year reduced a little to a still daunting $3.02bn. More than $2.05bn of that amount was interest expense on the group's $33bn of net debt, with almost another $6.1bn of non-cash depreciation and amortisation. much of it related to the shut-down of Nextel. Consolidated segment earnings, before those charges, more than doubled to $5.41bn. Revenues remained stuck in neutral, inching up minimally to $35.49bn.

The group adopted a new fiscal year during 2014. For the year to March 2015, revenues were $34.53bn. Substantial depreciation and amortisation charges resulted in another big net loss of $3.35bn. Softbank reported consolidated group revenues of Y8,670bn ($78.9bn) for ye March 2015, up over 30%. Net income rose 8% to Y668bn ($6.1bn).

For the year to 2017, revenues were $33.35bn, while another massive charge for depreciation and amortisation - over $8bn - resulted in a net loss of $1.21bn. Operating position, excluding those charges, was a profit of $1.76bn. Total debt and other obligations were almost $41bn. Interest expense alone was almost $2.5bn.

US tax reforms helped Sprint to the highest profit in its history in the year to 2018. Net income soared to $7.4bn, including $7.1bn of one-off gains. However revenues slipped 3% to $32.4bn.

Management

Dan Hesse became CEO of Sprint Nextel in 2007. However, with performance under even greater pressure following the collapse of merger talks with T-Mobile USA, he stepped down in August 2014, to be replaced by Marcelo Claure. Claure overhauled the management team shortly after his arrival. Nestor Cano joined the company in 2017 as COO. Michel Combes, a widely experienced executive from European telecoms groups (ex-Orange, Vodafone, Alcatel-Lucent and SFR), joined the company as president & CFO in early 2018. In April, Combes was promoted to group CEO, with Claure moving up to executive chairman and COO of Sprint's Japanese parent Softbank.

Former SFR and Altice Jeff Hallock succeeded Bill Malloy as chief marketing officer in January 2014, but announced his plans to leave the group the following year. Kevin Crull was appointed as his successor in May 2015, but was shifted to a new role as president, central region after less than seven months. Dow Draper is chief commercial officer.

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Softbank's founder and CEO Masayoshi Son became chairman of Sprint in 2013. Former senior Google executive Nikesh Arora is president & COO of Softbank.

Background

Although the Sprint brand did not come to prominence until the 1970s, the company is actually one of the oldest of America's non-Bell telephone companies. It was founded in Kansas in 1899 by Cleyson Brown as The Brown Telephone Company. In the early years of the 20th century it became known first as United Telephone & Electric, then United Utilities after diversifying into nuclear power and cable TV, and finally United Telecommunications. Meanwhile, during the 1960s, railroad company Southern Pacific began turning its railway telegraph system into a long-distance telecoms service. This was spun off in 1970 as Southern Pacific Railroad Internal Telecommunications, or SPRInT for short.

The long-distance market opened up significantly following the break-up of Bell (see AT&T), and Sprint was acquired in 1983 by GTE, which then sold it on in several instalments during the 1980s to United. The group also began building the country's first wholly digital, national fibre-optic network which delivered significantly superior line quality, completed in 1987. United changed its name to Sprint Corporation in 1992. The following year, the company joined forces with Deutsche Telekom and France Telecom to create international telecoms provider Global One. The Europeans each acquired a 10% stake in Sprint in 1996, before falling out with each other over DT's attempted takeover of Telecom Italia. In 1993, Sprint merged with local rural provider Centel to establish a presence all three sectors of long-distance, local and wireless telecoms. The creation of a joint venture three years later with cable companies TCI, Comcast and Cox Communications gave the Sprint PCS wireless service a near-national footprint for the first time.

In the mean time, the relationship between the three partners in Global One had continued to deteriorate and in 2000, France Telecom took full control of that business. The same year, Sprint was targeted by rapacious dealmaker MCI Worldcom. Fending off rival bidder BellSouth, the partners agreed a massive $130bn merger, but it was blocked by regulators (in what was later to prove a lucky break for Sprint's shareholders). Despite its size, Sprint PCS was still regarded as one the country's weakest mobile operators, with a reputation for poor service. However newly appointed CEO Gary Forsee began turning performance around in 2003, with a series of initiatives, not least the partnership with Virgin. Rapid consolidation within the industry encouraged Sprint to enlarge its own presence, and the merger with Nextel was agreed at the end of 2004.

A much younger corporation, Nextel was founded in the late 1980s as Fleet Call by entrepreneur Morgan O'Brien. It rebranded as Nextel in 1993 and quickly established its own national cellular service by acquiring several smaller operators, as well as Motorola's wireless network in the US. This provided a sound platform for the launch in 1996 of a high quality digital network based on Motorola's iDEN technology. As well as cellular communication this gave users text and numeric paging as well as a walkie-talkie "push to talk" service, Nextel Direct Connect, which proved extremely popular with American users.

The merger of Sprint and Nextel appeared to offer significant benefits to both companies, but came with several problems as well. Not least of these was the technological challenges inherent in merging two wholly incompatible networks without alienating existing customers, especially of Nextel's popular push-to-talk service. The group was also forced to spend considerable amounts of cash to buy out various affiliate resellers around the US. It seemed at first that the advantages probably outweighed the disadvantages, provided the enlarged company could maintain Nextel's reputation for entrepreneurial and innovative services, as well as its high profit margins. That promise began to dissipate during 2006 after a sharp slowdown in subscriber growth. The merged company reported a loss of subscribers in four out of five quarters between mid 2006 and 2007. There were also reports of continuing friction within the company between rival factions from the two still separate Sprint and Nextel divisions, as well as between group directors drawn from each camp.

Chairman & CEO Gary Forsee resigned in October 2007 as a result of pressure from shareholders over the company's declining market share. Dan Hesse was eventually named as his replacement in December. Three other senior officers left the company in early 2008, including CFO Paul Saleh - who had been interim CEO until Hesse's appointment - and the chief marketing officer.

Last full revision 2nd February 2018

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