Deconstruction, in the wireless business, is the practice of, in essence, decentralizing your business. While the wireless carrier in question focuses on tweaking their customer experience, running ads and the like, their networks, phones and spectrum are all owned and handled by third parties. While the business model has its ups and downs, the situations in which it can do any real good, aside from simplifying things for a carrier, are limited. Sprint, however, just so happens to be in such a pickle. They are in the middle of systematically dismantling their core business and revamping things from the inside out. While it’s enough to help keep them afloat, their free cash flow, the amount of profit that can be used to invest or pay down debt, is still on the low side and, according to analyst firm MoffettNathanson, will continue to fall.
Specifically, the firm said that Sprint’s core business will probably leak about $3 billion per year until something either gives or changes, even with current arrangements. Right now, Sprint is leveraging the high-band spectrum they once used for iDEN networking and older 2G networks, now highly prized as 5G material, to get cash flow going. Third parties own the spectrum and simply lease it back to Sprint, in an arrangement that netted them billions and is still ongoing. They also managed to nab $1.1 billion by shifting their handset leasing business to a third party entity started and owned by their parent company, Softbank. Similarly, they scored to the tune of about $2.2 billion recently in another still-ongoing deal, with this one being centered around their long-range network equipment and towers, mostly used for 3G and 4G connections. As with their spectrum, a third party owns the towers and they lease them.
Even with all of the decentralization going on, Sprint has been forced to bring their total capital expenditure guidance for the year down to $3 billion, causing quite a stir among shareholders and analysts who were looking to a $4.5 billion target as 5G networks begin to see the light of day and run stress tests. While Sprint’s own small cell 5G plan may be a bit cheaper than what most other carriers are doing, it’s still just that; a plan. With the setup Sprint has proposed, they are largely at the mercy of municipalities that they wish to provide 5G service in. According to MoffettNathanson, Sprint’s declining free cash flow numbers will keep them addled well into the 5G era, unless a drastic change is made.