Sprint says it won’t be putting any money toward an intensely watched auction for wireless airwaves next year, in what amounts to the company’s biggest gamble since it tried (and failed) to buy T-Mobile.
By choosing not to compete with its bigger rivals for new radio frequencies, Sprint is making a bet on the assets it’s already got. It’s a big decision that could prove pivotal as the company tries to engineer a massive turnaround from its fourth-place position behind T-Mobile, AT&T and Verizon.
“Sprint is prioritizing its financial resources to improve our network coverage, capacity, speed and reliability now and over the next few years,” said Sprint spokesman Jeffrey Silva.
Sprint faces mounting doubts about its ability to survive in what’s become a hypercompetitive industry. A long, bruising fight among all the carriers over wireless plan prices last year led to the end of restrictive two-year contracts and device subsidies. Now consumers have more freedom than ever to switch providers. And more changes are on the way.
Analysts expect the looming airwave auction to play a big role in shaping the future of the industry. It’s designed to grant access to a special type of radio waves, or spectrum, that can carry cellphone calls and data across long distances and through thick walls. For an idea of how big a deal this is, the most recent spectrum auction surprised everyone by raising over $40 billion. And that was for spectrum that’s considered less valuable than what’s in contest for the upcoming auction.
The auction is likely to raise enormous amounts of money despite Sprint’s decision to back out, said Preston Padden, a former Disney executive who’s advocated for greater participation in the auction.
“Verizon, AT&T, T-MO and multiple financial and other non-carrier bidders will assure strong demand and a hugely successful auction,” Padden predicted.
Padden may have a point, and here’s why: The airwaves at stake here are simply too good to ignore.
T-Mobile, whose fast-growing customer base surpassed Sprint’s in size this summer, is staking its long-term strategy on the auction. It spent a tremendous amount of political capital pressuring Congress and federal regulators to pass rules for the auction that would favor the company. T-Mobile chief executive John Legere even tweeted in September that Sprint was “crazy to sit out this historic auction.”
Wireless carriers of all sizes plan to use this spectrum, which operates at frequencies of 600 MHz, to expand their mobile broadband networks. It should make our cellular data faster and better able to handle intensive applications such as streaming music and video. The auction has been described as a once-in-a-lifetime opportunity, partly because carriers have never had so much access to such premium real estate before.
For Sprint to turn down a chance at gaining some of this game-changing spectrum raises questions about the company’s long-term strategy. Sprint says it doesn’t need any more spectrum to improve its network and that the money it saves by not participating in the auction will actually help it invest in other ways. Any spectrum it acquired in next year’s auction probably couldn’t be put to use anyway until 2020 at the earliest, said Silva.
But the real reason Sprint is backing out of the auction? It doesn’t have a choice, analysts say, because it’s hemorrhaging cash too quickly to have any extra left to spend.
“It simply doesn’t have the financial resources to buy more spectrum at this point,” said Craig Moffett, an analyst at MoffettNathanson. “Eventually, their only way out will be to find a merger partner. For now, they’re just trying to keep the wheels on.”