Sprint Looks to a Brighter Future as it Holds the Sprint Ahead Technology Summit

| August 17, 2007 | Wireless Services - U.S., Enterprise Mobility - U.S.
| Advisory Report

| Analysts: Kitty Weldon, Bill Ho

Current Analysis Perspective

After several quarters of bad news, including negative net additions, iDEN re-banding problems, layoffs, cynicism regarding its bet on WiMAX, and bad press, the nation’s number three carrier needed to generate some positive buzz.

To be sure, Sprint is juggling so many strategic balls in the air that it cannot afford to drop any of them. After delivering positive net additions (albeit a sliver compared to its rivals) and a mixed bag of financial metrics in its Q2 2007 earnings release the week before, Sprint held an open technology summit which included industry analysts, financial analysts and the press, to illustrate its tangible progress, officially introduce Xohm, its newly branded WiMAX service, and elaborate further on its vision.

Overall, the summit sought to generate excitement and optimism among industry thought leaders, and convince the world that Sprint is on the leading edge with a solid technology roadmap and good future prospects.

By and large, Sprint pulled out all the stops to the invited audience - dazzling them with keynote presentations by key executives, including CEO Gary Forsee, CFO Paul Saleh, and 4G head Barry West. Sprint’s numerous other top VPs delivered the message more granularly in breakout sessions and milled about answering questions, unfettered. Such commitment by its top management is an indication that Sprint understands the stakes are high and it cannot get it wrong.

The event was jam-packed with high-level recurring themes, as well as specific updates on current and emerging products and services. Highlights follow below:

Xohm Launch

WiMAX services, under the newly announced Xohm (pronounced “zoam”) brand, are predicted by Sprint to generate $2.5 billion in revenue by 2010. A soft launch of the WiMAX network is expected by the end of 2007 in the Chicago and Baltimore/Washington markets. Xohm commercial services are expected to be available beginning in the first half of 2008. While some of these projected revenues will no doubt cannibalize the CDMA base, Sprint estimates that 80% will be incremental, as WIMAX will enable Sprint to reach entirely new segments of users. In addition to generating money from data usage over the new high-speed network (which will be embedded not only in traditional handsets and laptops but theoretically in entirely new categories of devices), Xohm will be sold through an entirely new business model. As the costs of providing the service are so much lower (and as marketing and distribution will be shared by eco-system partners) Sprint will no longer have to subsidize handsets, and customers can go to their favorite retail store or distributor to buy devices and then self-activate them over the air. Service plans will be available on a pay-as-you-go, pre-paid or monthly basis. The combination of high revenues and low costs is anticipated to make the new service OIBDA-positive by 2010 as well.

The Reinforcement of the new Sprint Speed/Ahead Campaign

At the end of June, the carrier launched a new campaign, “Sprint Ahead” and dumped the much maligned and cloudy “Power Up” one. While it’s better than anything “power” related, Sprint still has some convincing to do. Innovative taglines that include “Slow Business is No Business,” “Forget Minutes, Think Seconds,” “There are No Slow Superheroes,” and “Carpe Da Moment” were projected across screens during the general session and for us, well-received. Still, while positioning “speed” as a differentiator and at the same time trying to turn the tables on network reliability and dropped calls, the positive impact may not be truly felt until WiMAX rolls out. Once it does, Sprint claims a two-year window before competitors can catch up to Xohm speeds with their own upgrades. Currently, speed-wise, CDMA rival Verizon Wireless can claim similar Rev. A speeds to Sprint, and AT&T is continually gaining with not only HSDPA but also imminent HSUPA deployments. Nevertheless, Sprint is likely to expunge anything “power” related in its branding, including the presently named Power Pack plans and Power Source phones, to align with its new marketing direction.

The Re-emergence of Nextel’s Direct Connect brand

The Sprint and Nextel integration has by no means been a smooth ride so far, with the company trying to accommodate the strengths of both brands and companies – witness the official name – Sprint Nextel. With two PTT brands pre-merger (ReadyLink and Direct Connect), the carrier sought to make the capability generic by proclaiming it “Walkie-Talkie.” The term didn’t work well in the market because high-performance PTT has always been associated with Nextel and its Direct Connect moniker. So while re-branding all PTT services on both networks as Direct Connect, Sprint admits that it made a poor choice. PTT is now positioned (and rightly so) as a feature and add-on, allowing Sprint to tie in with its traditional iDEN base by bringing back the well-understood Nextel brand. In addition, Sprint is optimistic that once the CDMA network can support high-performance push to talk over CDMA, it can sell PTT functionality to the white collar and family segments. Made possible with a wide-spread EV-DO Rev. A deployment and a Qualcomm feature called QChat, Sprint is promising identical performance on both networks as well as interoperability.

The Cable – JV Effort

Sprint showed off its Pivot services under the banner of converged services. Pivot, the wireless service brand of the cable joint venture that was formed in November 2005, has had a slow start. Currently in 20 markets, Sprint and its cable partners are projecting to hit 40 markets by the end of the year. With nearly two years since the inking of the JV agreement, Pivot as a brand really only emerged in 2007 and while Sprint and its cable partners are marketing intensely in those markets, the audience needed to see what was so special. Indeed, plans and launches have already been covered. To be fair, although the handsets are similar to the ones in the standard Sprint lineup, the menu/user interface that stamps the cable partners’ brand and the other features such as single bill and voicemail and local television content have needed reinforcement. However, features like remote DVR programming have yet to be launched and steps to make the mobile guide replicate the one users see at home is beginning to be table stakes. There is still a lot of feature development to realize the next level of convergence and the link to Sprint’s efforts in WiMAX is still unclear at this point.

The Femtocell

Sprint provided a room dedicated to showcasing some current and upcoming services and products. From a consumer standpoint, aside from some yet to be announced Q4 handset lineup, the most interesting display was the femtocell. Called Airave, this Samsung built femtocell is essentially a PCS band (1.9 GHz) access point similar to the ubiquitous WiFi devices found in electronics stores. Attached to a broadband connection, it offloads the wireless minutes onto the wireline network. The goal is to provide “5 bars” of coverage in a house and address the issue of poor coverage. While this sounds suspiciously close to T-Mobile’s WiFi based HotSpot @Home (with unlimited calling), a key differentiator will be the use of any standard CDMA handset instead of a UMA-based one. Yes, femtocells have been discussed as the next wave in the near future but Sprint has actually productized it for a possible launch before the end of the year. Like T-Mobile, Sprint can now address poor in-building coverage issues and help minimize Sprint’s long term capital expenditures (particularly in sparsely populated areas). Still, neither service pricing nor femtocell hardware pricing were disclosed while HotSpot @Home pricing for individuals and families is already out there as a reference point.

Enterprise Services

Sprint show-cased current business applications that run over EV-DO Rev A and leverage GPS in both laptops and handsets. It also demoed its current set of fixed mobile convergence services which include both Mobile Extension, based on the Ascendant platform, and its newer hosted Wireless Integration Service. WiMAX eco-System partners such as Intel and Motorola also showed off devices such as ultra-mobile PCs which will feature embedded WiFi/WiMAX chipsets down the road, offering high-speed access beyond the hotspot. Demos of workers taking advantage of WiMAX connectivity for real-time video-streaming/video-conferencing and graphics-intensive applications all running simultaneously provided a compelling picture of potential future uses of the technology. The only caveat here is that with every network upgrade, including the launch of EV-DO Rev A, the business case examples always sound basically the same. We do agree, however, that faster is better.

The Sprint Ahead Technology Summit was a seminal event for the carrier and Sprint deserves points for bringing its critics together to reinforce its message, vision, direction, and dedication to execution. Now that this is done, it still needs to execute cleanly and cannot let any of the strategic balls fall.

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