“Sprint’s network is deficient, it is losing customers, and it cannot generate enough cash to invest in its network, pay its debt obligations, and compete effectively.” In a submission this week to the FCC’s review of the its merger with T-Mobile, Sprint has presented a very frank and bleak assessment of its viability as a stand-alone player in the US market (PDF filing).

Despite a desire to focus on the positives and present a story of turnaround and improvement to investors on quarterly results calls, this submission makes the case for the merger by highlighting Sprint’s precarious market position and outlook. It quotes liberally from financial analyst reports and minutes from Board meetings to outline a narrative of a carrier losing relevance with its customers, with a tarnished brand, operating a network that under-performs its rivals and is a drag on its reputation, and in a free cash flow negative position that leaves no room to fix network problems either through network investments or spectrum acquisitions. 

This is, of course, a pitch to the FCC to green light the merger. It is a bold move. It perhaps overstates the long-term problem by not acknowledging any alternative scenarios for growth, but it is hard to argue with many elements of the bleak picture. In the past it has highlighted postpaid gross add and churn improvements in markets where it has run its “three-pronged leadership trial” of an enhanced network (with Massive MIMO upgrades), increased market spend, and expanded distribution, but now acknowledges this is not a financially viable strategy for a nationwide carrier. Even putting to one side the analyst quotes, its own assessment is no more flattering:
• “Sprint’s postpaid net additions recently have been driven by “free lines” offered to Sprint customers and the inclusion of less valuable tablet and other non-phone devices, as well as pre to post migrations that do not represent “new” Sprint customers.”
• “Sprint is losing relevance with its customers (primarily due to network and spectrum deficiencies) evident by decline in postpaid gross adds and increase in churn, resulting in drastic reductions in postpaid NAs in last 3 years.”
• “Despite more awards (RootMetrics, Neilson, etc.), our network is not great. We lost 2 years on a failed monopole program and delayed mini macro program while our competitors have advanced. ½ of our towers haven’t been upgraded. We have the worst network quality scores in the industry.”

Sprint’s inability to move beyond a 15-16% share of postpaid gross adds (before we even consider the value of these gross adds) and the damaging trajectory of its postpaid phone churn rate does present the picture of a carrier for whom “business as usual” is not an option if the merger is not approved. Recent scepticism about the deal from the Department of Justice, which doesn’t seem moved by the failing firm plea, does tip the balance towards this outcome.


 
So what are the options for Sprint if the merger is blocked? Perhaps it could:
• Find a carrier willing to swap low-band sub-1GHz spectrum for a slice of Sprint’s large 2.5GHz holdings, to enable Sprint to deliver better 5G coverage;
• Focus on urban markets and commit to full Massive MIMO 4G/5G coverage in these areas, and accept that it does not have the ability to compete in more rural markets;
• Or find a carrier willing to wholesale 4G or 5G capacity outside of Sprint’s 2.5GHz coverage footprint. Are there customer segments who would accept such a coverage/performance trade-off?
• Find another merger partner or willing buyer, with cable MSOs the more obvious candidates (though not without their own competitive challenges).

At least some of these scenarios are predicated on the idea that Sprint CAN fix its urban network quality and find a viable business model for massive MIMO upgrades and brand investment across those parts of its network. Softbank may need to dig deep and invest to boost Sprint’s network performance and weakening reputation, otherwise if the merger is not approved it will have an even weaker asset on its books and even fewer options for business recovery.