As he has done before, SoftBank chief executive Masayoshi Son on Tuesday shared with investors that he, too, has had his concerns about the fate of struggling U.S. wireless carrier Sprint.
But while he confessed earlier worries about the potential for Sprint to run into bankruptcy, Son said he believes Sprint has turned the corner.
“Sprint kept recording negative EBIT, and even I started worrying about the potential bankruptcy of Sprint. But for the first time in nine years, Sprint recorded positive EBIT,” Son said during SoftBank Group’s earnings presentation. “Last year, January, February, March, I said it’s a long way to go, it’s a long tunnel. We haven’t seen the end yet. That was my honest opinion, honest comment, back then…But now we regained confidence back and we are making a steady improvement.”
So it appears Son is less worried about Sprint than ever before.
But why? And should we believe him?
During Tuesday’s presentation, Son pointed to drastic network improvements, reduced churn and cost reduction as evidence of Sprint’s turnaround. Son also highlighted the carrier’s first ever quarter of better postpaid phone net additions than top competitors AT&T and Verizon.
But Son’s evidence might be a little flimsy.
Churn may have dropped to an all-time company low of 1.61 percent in 2015, but keeping customers only really matters if you’re also bringing in customers. While Sprint did manage to swing 22,000 postpaid phone net additions in the quarter – more than Verizon and AT&T’s loses of 8,000 and 363,000, respectively – the figure wasn’t nearly what the carrier needs it to be. For that matter, the number also wasn’t as high as one would expect with an ongoing half-off service offer.
Sprint can cut costs until it’s blue in the face, but all that will be for naught if it can’t pull in customers. As BTIG analyst Walter Piecyk put it at the end of April, “Whether its +20k or -20k, it doesn’t matter much. Sprint needs to figure out how to add millions if it is going to stop the cash burn.”
Speaking of cost cuts, Sprint would do well to be careful with its knife, especially when it comes to the carrier’s network spending.
Sprint has long been fighting an uphill battle against negative consumer opinions about its network and services. No matter which metrics you currently believe, the one thing that will matter for the networks of the future – especially with the onset of 5G – is network investment.
In March, Sprint CFO Tarek Robbiati talked a big game about the carrier’s plans to build a network of the future based on small cell densification and its high-frequency 2.5 GHz spectrum. Earlier this month, Sprint also revealed it is planning to conduct 5G field trials at a number of soccer events in Santa Clara, Calif., and Philadelphia, Pa., next month.
But the execution of Sprint’s network plans – and, by extension, its efforts to gain and retain customers through an improved network performance – seems unlikely given that the company just slashed its 2016 capital expenditure expectation by nearly 30 percent to just $3 billion.
Both Piecyk and market research company iGR criticized Sprint’s reduced capex spending and head-down approach to cost cutting, pointing out that it may be harmful in the end.
iGR said a lack of network investments will likely leave Sprint’s May 2017 network stuck in May 2016, while Piecyk declared Sprint’s singular focus on cutting costs – both in the network and for market promotions – a “losing strategy, as those cost cuts will lead to further contraction of gross additions and its subscriber base over time.”
So while Son might be confident in Sprint’s recovery so far, I’ve yet to be convinced.
We’ll just have to wait and see.
