After AT&T (NYSE:T)
Early on Thursday, Sprint offered to buy a remaining 49% stake in 4G wireless broadband service Clearwire
The deal may signal Sprint is poised to dramatically boost its capital spending in coming years, after being the thriftiest of players in a telecom sector marked by the big ticket wireless spending plans of AT&T
"Perhaps the biggest take-away from the announcement this morning that Sprint's Board of Directors has authorized a take-over of the remaining 49% of Clearwire is this: Sprint's capital intensity will rise," wrote Moffett, in a Thursday note to clients.
Now that Sprint is unequivocally placing its network bets on Clearwire, the issue is the corresponding spending needed to convert the service into a national 4G option. Notably, Clearwire's 2.5-GHz spectrum will require significant cell tower spending - roughly double the lower band spectrum of MetroPCS (NYSE:PCS)
A full takeover of Clearwire and the prospect that Sprint foots the bill on a cell-tower heavy nationwide 4G rollout may have a big impact on the company's margins. Notably, Sprint may see itself fall from generating some free cash flow in 2012 to none. In coming years, the proposed full takeover is forecast to cut Sprint's free cash flow profile by 15%, according to Moffett's calculations.
The bigger issue is whether Clearwire represents just one area where Sprint will have to dramatically increase its spending in coming years, depressing free cash flow.
Sprint continues to see unlimited Apple
From a pocketbook perspective, Sprint's unlimited data plans compare favorably to the tiered data plans of AT&T and Verizon; however, consumers need to take a leap of faith on coverage, data speeds and the company's improving financial picture.
Sprint also is in the process of completing Network Vision , a rollout of a nationwide 4G network, but its reported spending plan pales in comparison to AT&T even after the company was effectively recapitalized in a merger with Softbank of Japan.
Earlier in December Moffett highlighted the tension of Sprint's relatively light spending plans in comparison to the likes of industry leaders AT&T and Verizon. The question he raised was whether Sprint would have to reverse course.
In the face of AT&T's options and its comparative financial and network position, Moffett wrote, "Starting a spending war is AT&T's best option," of the company's recently announced wireless capex budget through 2015.
The numbers are striking, according to Moffett's calculations.
In 2013, AT&T is expected to spend over $12 billion on its wireless network, roughly 30% more than competitor Verizon and 176% more than Sprint, which is already playing catch up when it comes to network strength.
Meanwhile, between 2009 and 2013, AT&T is projected to spend $57 billion cumulatively, compared with $54 billion at Verizon, $17 billion at T-Mobile and just $14 billion at Sprint.
In spite of what appear to be diverging strategies and earnings profiles heading into 2013, Moffett increasingly sees reason to believe AT&T is simply being forthcoming about the true capital costs telecoms face as they prepare for growing smartphone and data usage. The analysis also raises the question of whether the numbers behind Sprint's unlimited data plans and smaller-than-peer wireless network spending reflect reality.