Sprint – Femtocell Deployment – A Smart way of Managing Capital and Maybe an Alliance with SK Telecom

Implications: My view of femtocells has been focused on how a company like Verizon could leverage the technology with its FiOS business.  Sprint’s use of the technology is an interesting way of managing its capital.  I would love to tell you that I had thought of it earlier but I did not.  It just goes to show you that Sprint is definitely in the restructuring mindset.   Femtocells could even play a role with SK Telecom.

Analysis: Assuming Sprint is actually deploying femtocells in order to grow its network incrementally and defer/manage capital, I think the move is very smart.

From a landline perspective, I saw femtocells as a way for a telecommunications corporation like Verizon to leverage a wireless technology in order to further mine the value of its landline company’s fiber optic network.  From a wireless perspective I had been viewing femtocells as a way of deploying intelligence into the wireless network.  In other words, as I had stated in past analyses I saw femtocells as the next generation of intelligent cell sites and base stations.  The difference is a small difference but there is a difference.  I had not considered the technology a tool for capital deferral/management.

Restructuring professionals are not all about shutting down companies.  Restructuring professionals focus on salvaging companies - quite literally performing extreme makeovers.  To restructure a company requires the management and the advisors to be very innovative.  In other words Sprint is a largely untested technology and deploying it to support its 4G initiatives and its cap ex reduction plans.  Interesting to say the least.

I am a supporter of femtocell technology.  Despite its newness, the technology has the potential to play a pivotal role in 4G deployment.  The wireless industry has spent years deploying technology that has not completed the rigors of standardization - if you heard different than you heard wrong.

Given, the current economic environment one might think I would be supporting a roll back of cap ex on this technology.  You would be wrong.  There is a time and place to spend cap ex dollars even during a time of distress and under performance – and this is one of those times.  Sprint needs to do something to deploy its next gen network as quickly as possible in order to re-establish itself in the marketplace.  Dan Hesse has already re-organized most of his executive team.  Dan Hesse has also started cutting costs and selling off assets to generate cash.  The next thing Dan Hesse has to do is physically position the company for growth.  The company’s new Clearwire venture is one step in the process of growth.  However, that step is very dependent on a complex partnership working correctly.  Dan Hesse has to hedge his bets and do something for Sprint alone.

If Sprint decided to use femtocells, Sprint ought to test them with SK Telecom.  I could not think of a better cooperative venture partner.

If Sprint were going to leverage a relationship with SK Telecom, I would suggest it include femtocell technology as a first joint venture.  SK Telecom could end up using Sprint’s network for its MVNO (mobile virtual network operator) ambitions in the United States.  SK operates as Helio in the United States.  This could work; SK is a sophisticated telecom company with deep experience in wireless.  Don’t forget SK has experience with the Korean version of WiMAX known as WiBRO.  So the femtocell deployment could support CDMA in Sprint but imagine, if Sprint wanted to deploy femtocells in a WiMAX configuration.  Okay, the WiMAX thoughts are a bit of a stretch for now.  However, the point is there may be more method to the madness than Sprint is willing to let in on.

For now, investors need to think about this one for now and start watching femtocell vendors closely.

More deep thought and discussion is needed.