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The Evolution of Sprint Wireless

In: Computers and Technology

Submitted By jashaw05
Words 2773
Pages 12
Company Background
The wireless phone industry has made its mark on the world in incredible fashion. If we look back at history, twenty years ago you had to be either a celebrity or someone of incredible prominence to own a “mobile” phone. Today, the industry is so mainstream that 86% of people all over the world own a cell phone. Here in the U.S. 18% of Americans use a cell phone as there primary phone. The house phone is becoming obsolete and cell phone companies are reaping in the rewards. With all the added features of today's basic cell phone, the devices are also becoming a primary source for television, cameras, mp3 players and personal computers. Cell phones have served as a security tool for parents who want to keep an electronic eye on their children while still keeping their distance. They can be your GPS when you are lost in the middle of nowhere. They can be your best friend in an emergency or if you find yourself in any other tight spot. I once had a classmate who told me that he had a paper due in less than 45 minutes and he wrote and submitted it on his Blackberry. For these reasons and many more, the cell phone industry has exploded in the last quarter century and some of the major service providers have made profit hand over fist. This narrative is meant to give the reader an insight into Sprint; one of the top three service providers here in the U.S.

The Sprint company began in the late 1800's as the Brown Telephone Company based out of Abilene, Kansas. Started by visionary Cleyson Brown, the Brown Telephone company was originally meant to challenge the local power, Bell Telephone Company. Bell, which owned all important patents related to the telephone, enjoyed a monopoly on local telephone service. But in small towns like Abilene, Bell service was expensive and often viewed by the public as big business. In addition, Bell's patents were about to expire, leaving the door open for entrepreneurs to create alternative services. (Robinsonlibrary.com, 2014) By 1899, Brown had announced the formation his own company carrying his namesake and in 1902 the Brown Telephone Company was officially chartered. In 1925, Brown formed United Telephone and Electric (UT&E) and through the first half of the Great Depression acquired large telephone holdings in Pennsylvania, Indiana, Ohio and Illinois in addition to what they had already established in Kansas. But by 1933, the number of subscribers had dropped and government regulations had prevented Brown from selling any additional stock in UT&E. This led Brown to relinquish control of the company. He would die two years later. (Fiercetelecom.com, 2011)

After economic recovery began in 1937, the UT&E company had regained its prominence and became United Utilities, the nation's third largest phone service provider behind The Bell Company and the Atlantic Telephone and Telegraph Company (AT&T). United Utilities continued to grow, and in 1972 changed its name to United Telecommunications, Inc.; also known as United Telecom. In 1984 United Telecom acquired one of the largest low-cost long distance telephone businesses in U.S. Telephone Communications, and by the end of 1985 it had more than 4,700 miles of fiber optic network in place. That same year United Telecom formed a partnership with GTE, which had recently acquired Sprint, a low-cost long distance carrier. In 1989, United Telecom and Sprint merged into one company with two major divisions; long distance and local service. In 1991, United Telecom completed its acquisition of Sprint and changed its corporate name from United Telecommunications to The Sprint Corporation. (Robinsonlibrary.com, 2014)

Recent History & Latest Financial Year
In February of 2014, The Sprint Corporation announced its year end revenue report for 2013. The report states that the company's operating revenue increased to more than $35.5 billion for the year and their operating losses were at $576 million, a 22% improvement from the fourth quarter of 2012. After adding 58,000 postpaid subscribers, 322,000 prepaid subscribers and 302,000 wholesale and affiliate subscribers Sprint ended the year with 53.9 million Sprint platform subscribers, its most ever. The company sold 20.5 million smartphones for the year with smartphone sales mix reaching 95% for postpaid and 66% for prepaid in the fourth quarter. “Quarterly net loss was $1 billion in the fourth quarter as compared to a loss of $1.3 billion in the fourth quarter of 2012.” (Sec.gov)

During the fourth quarter the company unveiled Sprint Spark; a combination of advanced network and device technology with the potential to surpass wireless speeds of any other U.S. network provider. The company plans to deploy Sprint Spark in about 100 of America’s largest cities during the next three years. Sprint Spark is currently available in 14 markets including New York, Los Angeles and Chicago. By the end of 2014, 100 million Americans are expected to have Sprint Spark coverage. (Sec.gov)

Earlier this year, Sprint also introduced Sprint Framily, a new pricing program available to new and existing customers that lets consumers decide who they consider family. With Sprint Framily, the more people added to the group, the greater the savings for everyone on the plan. (Sec.gov)

Company Analysis
Sprint's market structure is currently at third amongst the major cell phone service providers in the U.S. behind Verizon and AT&T. They currently have around 55 million subscribers and that number seems to be growing everyday. Because of Sprint's innovative Spark and Framily features, they have the potential to add many more subscribers during the current year. The downside, although Sprint offers better pricing packages for unlimited data than its biggest rivals, their widespread lack of 4G in major metropolitan areas throughout most of 2013 has damaged the carrier's reputation. (Kameka, 2013) But, the launching of the new Spark and Framily programs are all part of Sprint’s Network Vision program of 2013. The program includes a complete upgrade of the 3G network and deployment of 4G LTE. As part of that program, Sprint is redeploying its 800MHz spectrum for LTE and 3G with the goal of delivering improved in-building coverage for voice and data. Other parts of the program include the Clearwire acquisition making Sprint Spark possible by providing access to contiguous 2.5GHz spectrum, the acquisition of spectrum from U.S. Cellular; significantly increasing network capacity in key Midwest markets, the deployment of in-building systems at key locations of mass gatherings and the transition of iDEN business and government customers to Sprint’s 3G CDMA network. According to the company's website, they are poised for a huge breakthrough in 2014. (Schlageter, 2013)

The Sprint Corporation is reportedly contemplating a bid for T-Mobile USA, a move to merge the nation's third and fourth largest carriers, leaving only three large carriers in the U.S. mobile market. T-Mobile USA owner Deutsche Telekom has expressed interest in selling but some have suggested that federal regulators may file lawsuits to block a purchase by Sprint in order to avoid the cell phone industry turning into even more of an oligopoly than it already is. (Mick, 2014)

T-Mobile stays relevant as the number four provider of cell phone services in the U.S. with about 47 million customers. Since the beginning of last year they have been engaging in an aggressive and unapologetic marketing campaign dubbed its "uncarrier" strategy. Its aim is to upend the mobile industry, and it's been doing that by eliminating contracts, dropping international roaming charges and offering to pay competitors' customers $650 to switch over.

Their strategy has been effective as it has left the larger providers scrambling for answers. AT&T has recently offered T-Mobile customers $450 to switch and cut prices twice already this year. Sprint and Verizon have also cut prices in response, and all providers have begun moving away from two-year contracts due to T-Mobile's influence. (Pagilery, 2014)

So, the questions linger; why would T-Mobile want to merge with Sprint? Why would the federal government even allow for it? The answer lies in the consumer. If the number 3 and 4 cell providers merge, it will create a “Big 3” pool of competition instead of a big 1 and 2 with a complementary 3 and 4. According to CNN Money, AT&T has 110 million customers, Verizon has 103 customers and if the merger goes through, Sprint will be 101 million strong.

The reason the FCC blocked the proposed merger of AT&T and T-Mobile back in 2011 was because it would essentially create a duopoly of cell providers will less competition and less restraint to control outrageous pricing. The FCC said that the AT&T merger would create more incentive to collude than compete. The decision has since spelled savings for consumers. T-Mobile has proven incredibly valuable, offering a blitz of new plans that upend expectations for what we ought to accept from a phone company. On the other hand if Sprint were to merge with T-Mobile then the U.S. would have 3 major providers. There is no guarantee that Sprint will not do-away with the pricing plans that T-Mobile has in place. “If Sprint bought T-Mobile, it's not at all clear its mavericky ethos would survive the clash of corporate cultures. A strengthened third-place competitor might just play the same game as the two majors.” (Depillis, 2013)

This news comes only a few months after Sprint itself was acquired by the SoftBank Corporation of Japan. On July 10, 2013 the merger was completed giving SoftBank 72% of stock in the company after investing approximately $21.6 billion in Sprint, consisting of approximately $16.6 billion to be distributed to Sprint stockholders and an aggregate $5 billion of new capital ($1.9 billion at closing) to strengthen Sprint’s balance sheet. Sprint stockholders voted to approve the transaction at a special meeting of stockholders held on June 25, 2013. (Sloat, 2013)

“The remaining shares are being converted into shares of a new publicly traded entity named Sprint Corporation. Each Sprint stockholder had the option to elect to receive one share of common stock in the new company or to elect to receive cash, subject to proration, for each share of Sprint common stock owned by that stockholder. A stockholder who made no election was deemed to have elected cash.” (Sloat, 2013)

Sprint has recently joined forces with the Clear Channel Media Company. Together they plan to help U.S. veterans find work after serving in the armed forces. The program, “Show Your Stripes” intends to generate awareness around the issue of veteran unemployment, encourage businesses to hire skilled veterans and help those transitioning out of the military to find jobs. (Fowler, 2013)

Sprint's pricing strategy is in line with the other two major providers. The biggest factor of separation between them is the area of coverage across the U.S. that Sprint provides. That shortcoming is currently being addressed by Sprint's acquisition of more spectrum space. As far as pricing, the only one of the four primary providers that stands out is T-Mobile because of their recent aggressive pricing campaign.

Sprint plans to launch HD Voice by July of 2014. Sprint customers can utilize this feature on popular devices like the iPhone 5s/5c, Galaxy S4, Note 3, Nexus 5 and HTC One and One Max. Along with deploying new products and services, Sprint is also focused on investment. The cell provider acquired Handmark Inc., a Kansas City-based developer and distributor of mobile applications along with its subsidiary OneLouder Apps Inc. to aid Sprint’s Pinsight Media, which offers advertising services targeted at the enterprise segment. The acquired companies are also likely to enhance Sprint’s capabilities in branding and app development.

Also, Sprint recently announced the launch of unlimited plans for voice, text and data services. The service, known as Sprint Unlimited Guarantee would offer unlimited data for $30 a month on smartphones and $10 per month on other phones. Sprint is attempting to make moves toward differentiating their services from the other primary competitors and with these latest technology and service upgrades, Sprint will provide themselves with a significant competitive advantage. (Yahoo Finance, 2013)

Sprint has carved out its market niche through 3D entertainment. Currently, Sprint is the only provider to offer the HTC Evo phone with services that allow consumer to watch programming in 3D without the use of pesky specialized glasses.

Any and all sizable firms around the world have a necessity for alliances with other firms to maintain a competitive advantage in business. Be it for a complementary or substitute product, business bonds must be developed. For Sprint, they have four primary alliances with Cisco, IBM, Intel and Microsoft. Cisco offers Sprint 3G integrated wireless/wireline routers and wireless integration to enable the convergence of voice, video and data. IBM is able to couple their assets and business process knowledge to introduce custom solutions such as the Sprint Business Mobility Framework to enable real-time applications. Sprint and Intel have partnered to combine a cutting-edge communications network in hopes of unlocking the true value and possibilities of 4G. Microsoft is able to provide business and consumer applications delivered via Sprint's wireless services as well as solutions that provide network security and reliability. (Sprint.com, 2013) When SoftBank acquired Sprint last year, CEO Masayoshi Son immediately announced plans to open a new research and development facility in California. The brand new structure is meant to house 1,000 engineers who will be working on both hardware and software endeavors. The state of the art facility is projected to rival that of the Googleplex in Santa Clara County. (Marek, 2013)

On a weird, head-scratching note, the Sprint Corporation is now in the midst of a lawsuit with the U.S. government. The suit alleges that Sprint has overcharged several government agencies over $21 million for wiretap operations that spied on Sprint customers. The law enforcement agencies including the Federal Bureau of Investigation (FBI), the Drug Enforcement Agency (DEA), the U.S. Marshals Service (USMS), the Bureau of Alcohol, Tobacco and Firearms (ATF) and Immigration and Customs Enforcement (ICE) believe Sprint knowingly submitted false invoices for services that complied with the Communications Assistance in Law Enforcement Act (CALEA). The invoices, that have long been paid in full, include the costs that Sprint incurred in financing investment in CALEA equipment including the cost of debt, cost of equity, and associated taxes. Between January 1, 2007 and July 31, 2010, the lengths of the contracts, Sprint received $20.97 million from the DEA, $10.6 million from the FBI, $3.2 million from the USMS, and $2.4 million from ICE totaling $37.17 million.

Although Sprint has apparently received more than half of what should have been paid, they have refused to pay back anything to the government. Sprint has stated claim that what they charged was right and fair and they will fight any charges vigorously. The U.S. government is seeking the $21 million they believe was overpaid as well as an additional $42 million in damages and civil penalties. (Brodkin, 2014)

Recommendations for the Future
My recommendation for Sprint's future would be to stay the course. I believe that between the SoftBank merger, the new pricing techniques, the acquisition of more spectrum space, the Network Vision program and the new research and development facility Sprint is on their way to having a big year with more to follow. My most important recommendation for them is to comply with the lawsuit from the government as I believe that it can very possibly cause repercussions in merging with T-Mobile. For whatever reason, if the government feels that the merger is not a good idea and decides to invoke the Sherman Anti-Trust Law, that could spell disaster for Sprint. I think a decision in this matter could have large implications for the future of Sprint as the third largest carrier. If the merger finally went through, it would provide Sprint with the necessary scale to really compete with its larger rivals, driving down its operating costs. Coupled with the full Network Vision initiative, Sprint is projected to save a total of $11 billion dollars by 2017. (Illia, 2013) If the merger does not go through, there is a possibility that they will become only the fourth largest provider as T-Mobile is right on their heals in terms of subscribers. I think it best not to rock the boat.

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