It looks like Sprint might be the only one that thinks drastic CapEx cuts are a good idea.
BTIG’s Walter Piecyk and market research firm iGR on Monday both slammed Sprint’s decision to drastically reduce capital expenditures in 2016, alternatively describing the move as a “red flag” and “not good.”
The carrier last week announced it would lower its 2016 capex spending to just $3 billion, down from $4.08 billion in fiscal year 2015 and $4.86 billion the year prior. In a Monday research note, Piecyk said the $3 billion in spending is reminiscent of the level of capital investment seen during the financial crisis in 2008 and 2009.
“We think Sprint’s aggressive cut to capital investment and continuing lack of evidence on any activity to improve its network raise red flags about the company’s strategy,” Piecyk wrote. “While it’s true that small cell investment is largely expensed rather than capitalized, we have observed virtually no evidence of Sprint’s network activity over the past year.”
Piecyk also said BTIG is “skeptical” both of CEO Marcelo Claure’s claim that the “heavy lifting” on network investments was completed with Sprint’s prior modinerization plan, Network Vision, and of Sprint partner Mobilitie’s ability to execute small cell deployments using rights of way.
Similarly, iGR in a Monday opinion article criticized Sprint for prioritizing sales over their network.
“It is clear that Sprint believes it does not have a network problem but rather a sales and distribution issue,” iGR wrote. “Call us skeptical, but I am not sure that Sprint’s problems can be fixed by simply giving people more places to buy services and new sales staff; after all, if the 50% off promo did not lead to millions of new customers, are a few new stores likely to result in a flood of new customers? Hard to see. As the other mobile operators have demonstrated time and time again, product matters, and product means network.”
While iGR noted Sprint can’t stop spending on its network entirely – thanks to ongoing maintenance necessities – it can and probably will cut back on network investments and upgrades. The result, iGR said, will be a 2017 network stuck in the past.
“For now realize that the network Sprint has today in May 2016 will likely be very, very similar to the network they have in May 2017,” iGR wrote. “And in this competitive environment, that is not good.”
Filed Under: Infrastructure
