Sprint: Potential 4G Separation Causes; FiberTower Selected as Backhaul Supplier

Implications: 1.From apparently the very beginning of Sprint’s entry into 4G, there was a clear architectural separation from the rest of the wireless business.
2.Later the group became organizationally distinct, and then there was discussion of tracking stocks.
3.FiberTower will be a participant in Sprint’s 4G deployments later this year.

Analysis: From a design point of view, there was evidently an obvious separation of the 4G operation at Sprint right from the start. They were using their own authentication servers and their own home agents. They were not sharing any of the normal things within all of the rest of Sprint’s wireless or backhaul networks. The 4G group also remained very small for a long time.

More recently the WiMAX organization itself started pulling away. They are getting their own office space in Herndon and building their own lab in that building. In addition, they are setting up their own management structure, with Barry West at the helm.

Most changes in the overall company structure and the layoffs associated with them were all finished at Sprint by the end of April. Those alterations were driven more by

gaining corporate efficiencies – not by products or formally separating out groups. The reorgs that got down to the manager or director level were maybe done in the last three weeks or so – including lining up the 4G organization to match with the architecture.

Sprint’s 3G laboratories are spread all over the country. The iDEN side is based in Sterling, VA. Other Sprint 3G labs are in Lenexa, KS, Overland Park, KS, and in Burlingame, CA.

Sprint’s CEO eventually started at least hinting about tracking stocks. One possibility for doing so is that Sprint lacks the spectrum in the 4G space to match the 3G footprint. Sprint needs a partner, such as Clearwire, and a tracking stock, where people can plainly see the value, would facilitate such an outcome. A joint venture would help solve the missing spectrum issue, avoiding confusion in not having both the 4G and 3G working in a particular city.

There are other potential reasons for Sprint moving towards a tracking stock (that could eventually be spun or sold off):

· Get additional money to arrive at 4G faster

· If WiMAX becomes really successful, Sprint can avoid competition with its EVDO Rev B or Rev C networks.

· If WiMAX becomes a huge flop, it will be easier to write off – Sprint will know exactly how much it dumped in that hole.

· Help avoid alienating Sprint’s very important cable partners (where they have been perceived to have always dealt with Sprint at an arm’s length), if they view the 4G data offerings as a threat to their cable modem service

· Position for a cleaner merger (in anticipation of the eventually failed deal with MCI WorldCom years ago, Sprint pulled out IP assets because there was fear of combining UUNET and SprintLink together)

· Deal with the pressure of using the licenses as part of the Nextel merger requirements with aggressive deployment – prove to the industry that WiMAX works – and generate enough hype so that it becomes very attractive to another company

· Irrational reaction to the Broadcom/Qualcomm conflict– all of a sudden 4G might be the future. If Sprint cannot buy phones with Qualcomm chips in it anymore, it might be lead to the end of the 3G network.

This last possibility is admittedly a huge leap. It is hard to imagine that the problem will

not be worked out in concern for the entire wireless industry.

In fact, Sprint was unprepared for the huge level of demand for EVDO Rev A. The high expectations for plain vanilla EVDO never materialized. It is quite possible the closer a wireless company gets to a cable modem or DSL-type connection, the more interest that will be shown by subscribers.

Regarding FiberTower, the supplier went through a field trial at Sprint and it will participate in a 4G production rollout around the August timeframe. FiberTower customizes its microwave links, which are connected to SONET rings, for backhaul applications. There is a lot of flexibility in placing antennas anywhere they are needed.

Part of the reason for Sprint not using WiMAX for backhaul purposes might be because the carrier has gotten out of the strategic planning/development mode and is more concerned with reacting to quarterly stock analysts comments. This theory is based on the realization that a dollar’s worth of revenue (using WiMAX) is often more impressive than a dollar’s worth of cost savings.