Sprint to Sit Out Next U.S. Auction of Airwaves

September 27, 2015, 09:25:00 PM

Sprint Plans to Sit Out Next U.S. Auction of Airwaves

Move would save carrier billions of dollars but could deprive its network of future upgrades

Sprint Corp. said it plans to sit out a coming auction of wireless airwaves, a decision that will save the carrier billions of dollars but could deprive its network of upgrades in the future.

The Federal Communications Commission has scheduled a major auction for March 2016. The U.S. government plans to buy airwaves from TV broadcasters that it will then resell to wireless carriers.

Sprint said on Saturday that its airwaves at present are “sufficient to provide its current and future customers great network coverage.” The U.S. wireless carrier is about to commence on another major network overhaul it says will sharply improve data speeds.

The airwaves to be auctioned are considered as premium “beach-front property” because they are situated at lower frequencies. Low-frequency airwaves travel farther and penetrate buildings better than airwaves at higher frequencies, meaning carriers can cover larger areas using fewer cell towers. The airwaves are necessary to meet exploding consumer demand to stream videos and browse the Web on smartphones.

Sprint’s decision not to participate removes a major player from an auction that is the centerpiece of FCC Chairman Tom Wheeler’s tenure. T-Mobile US Inc., Verizon Communications Inc. and AT&T Inc. are unlikely to drop out of the bidding. The auction will be a success only if carriers are willing to pay enough money to encourage TV broadcasters to part with their airwaves, or spectrum.

An FCC official said on Sunday that the agency wasn’t surprised Sprint decided not to participate given the public hints it has made in the past few months, and pointed out that the last two major auctions were a success even though Sprint wasn’t involved.

The FCC plans to set aside a chunk of airwaves in the auction that only companies without much low-frequency spectrum, like Sprint and T-Mobile, can bid on. Sprint’s decision to bow out means T-Mobile may have an easier route to winning those airwaves unless other bidders, like technology or cable companies, decide to participate. There is much speculation tech or cable companies could buy spectrum to build their own wireless offerings.

Sprint has one of the deepest troves of spectrum, in the industry, but the vast majority of it is situated at higher frequencies. That means Sprint must install more cell antennas to equal the same coverage as AT&T and Verizon, which have far more low-frequency spectrum. Sprint obtained a large swath of its higher frequency airwaves when it acquired wireless Internet provider Clearwire Corp. in 2013.

Underlying Sprint’s decision to stay out of the next auction could be financial trouble. The carrier hasn’t turned an annual profit since 2007, and it burned through $2.2 billion in cash in the latest quarter. It plans to set up off- balance sheet companies with the backing of parent company SoftBank Group Corp. to finance phones and network equipment. It also has said it doesn’t have plans to tap debt or equity markets.

Earlier this month, Moody’s downgraded Sprint’s credit rating two notches, to B3, saying it lacked confidence in the company’s turnaround plan.

A Sprint spokesman said on Saturday that the carrier is “prioritizing its financial resources to improve our network coverage, capacity, speed and reliability now and over the next few years—and we already have the spectrum we need to do so. That is more important for Sprint and its customers than investing in [this] spectrum that won’t benefit our subscribers until 2020 at the earliest.” After the coming auction, it will take several years for the new spectrum to be fully available to the carriers.

Sprint has struggled with its network for roughly a decade, ever since a disastrous 2005 merger with Nextel. Following that deal, Sprint drastically cut back network spending to keep the company solvent. In 2011, it began a four-year effort to overhaul its network, which was made more difficult by the years of underinvestment.

That work is starting to pay off, however. The carrier has seen dramatic improvements in call quality and data speeds in the past year, according to independent network analytics firm RootMetrics.

Sprint hasn’t participated in a major government auction in at least a decade. It sat out the most recent auction, which ended in January and raised a record of roughly $45 billion. The company also didn’t participate in 2008, the last time the government auctioned low-frequency airwaves.