"Sprint is prioritizing its financial resources to improve our network coverage, capacity, speed and reliability now and over the next few years," said Sprint spokesman Jeffrey Silva.
Sprint faces mounting doubts about its ability to survive in what's become a hypercompetitive industry. A long, bruising fight among all the carriers over wireless plan prices last year led to the end of restrictive two-year contracts and device subsidies. Now consumers have more freedom than ever to switch providers, along with entirely new ways of paying for smartphones. And more changes are on the way.
Analysts expect the looming airwave auction to play a big role in shaping the future of the industry. It's designed to grant access to a special type of radio waves, or spectrum, that can carry cellphone calls and mobile data across long distances and through thick urban walls. For an idea of how big a deal this is, the most recent spectrum auction surprised everyone by raising over $40 billion. And that was for spectrum that's considered less valuable than what's in contest for the upcoming auction.
The auction is likely to raise enormous amounts of money despite Sprint's decision to back out, said Preston Padden, a former Disney executive who's advocated for greater participation in the auction.
"Verizon, AT&T, T-MO and multiple financial and other non-carrier bidders will assure strong demand and a hugely successful auction," Padden predicted.
Padden may have a point, and here's why: The airwaves at stake here are simply too good to ignore.
T-Mobile, whose fast-growing customer base surpassed Sprint's in size this summer, is staking its long-term strategy on the auction. It spent a tremendous amount of political capital pressuring Congress and federal regulators to pass rules for the auction that would favor the company. T-Mobile chief executive John Legere even tweeted Saturday that Sprint was "crazy to sit out this historic auction."
Wireless carriers of all sizes plan to use this spectrum, which operates at frequencies of 600 MHz, to expand their mobile broadband networks. It should make our cellular data faster and better able to handle intensive applications like streaming music and video. The auction has been described as a once-in-a-lifetime opportunity, partly because carriers have never had so much access to such premium invisible real estate before.
For Sprint to turn down a chance at gaining some of this game-changing spectrum raises questions about the company's long-term strategy. Sprint says it doesn't need any more spectrum to improve its network and that the money it saves by not participating in the auction will actually help it invest in other ways. Any spectrum it acquired in next year's auction probably couldn't be put to use anyway until 2020 at the earliest, said Silva.
But the real reason Sprint is backing out of the auction? It doesn't have a choice, analysts say, because it's hemorrhaging cash too quickly to have any extra left to spend.
"It simply doesn't have the financial resources to buy more spectrum at this point," said Craig Moffett, an analyst at MoffettNathanson. "Eventually, their only way out will be to find a merger partner. For now, they’re just trying to keep the wheels on."
Indeed, Sprint is hinting — none too coyly — that it would just love to find another company to merge with. Company chief executive Marcelo Claure told Reuters last week that Sprint would be "stronger and more formidable" if it merged with a cable company. There is a whole host of reasons why the cable industry might view Sprint as an attractive target. As Americans increasingly turn to mobile devices for their Internet, cable companies are realizing they need to keep those customers by offering wireless access to the Web, too.
Many now offer public WiFi hotspots as a solution. But in places where WiFi doesn't make sense, these companies lack coverage. That's where a cellular carrier like Sprint could fill the gaps.
The question for Sprint is whether its network is attractive enough, or someday could be, for a cable company to seek a merger. At a time when practically everyone else in the industry is looking to get in on the spectrum feeding frenzy, Sprint will need to show that its decision to sit out will pay off in the form of a more competitive network.