Research methods unit VI Scholarly Activity and DQ Question

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COMPANY PROFILE

Sprint Corporation

REFERENCE CODE: 8613378D-5CF0-49B7-93F8-346EE511D261 PUBLICATION DATE: 31 Dec 2015 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.

TABLE OF CONTENTS

Company Overview..............................................................................................3

Key Facts...............................................................................................................3

SWOT Analysis.....................................................................................................4

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Sprint Corporation TABLE OF CONTENTS

COMPANY OVERVIEW

Sprint Corporation (Sprint or “the company”) is a communications services company engaged in offering a range of wireless and wireline communications products and services to consumers, businesses, government subscribers and resellers. The company primarily operates in the US where it is headquartered in Overland Park, Kansas and employed about 31,000 people as on March 31, 2015.

The company recorded revenues* of $34,532 million during the financial year ended March 2015 (FY2015). The operating loss of the company was $1,895 million in FY2015. Its net loss was $3,345 million in FY2015.

*Sprint Corporation is a successor company to Sprint Nextel Corporation (predecessor). The company merged with SoftBank in 2013. In order to align with SoftBank’s reporting schedule, the company changed its fiscal year end to March 31. As a result of financial transactions at the time of SoftBank merger, the financial results of the predecessor are different from the successor. Therefore, they are not comparable. The revenues covered in this report are of the successor company.

KEY FACTS

Sprint CorporationHead Office 6200 Sprint Parkway Overland Park Kansas USA

1 855 848 3280Phone

Fax

http://www.sprint.comWeb Address

34,532.0Revenue / turnover (USD Mn)

DecemberFinancial Year End

31,000Employees

SNew York Ticker

Sprint Corporation Page 3 © MarketLine

Sprint Corporation Company Overview

SWOT ANALYSIS

Sprint Corporation (Sprint or “the company”) is a communications services company engaged in offering a range of wireless and wireline communications products and services to consumers, businesses, government subscribers and resellers. Sprint is the third largest telecom provider in the US with large subscriber base, network and spectrum, which will enable it to tap into the emerging opportunities. However, the impending saturation and limited availability of spectrum will impact Sprint's growth prospects.

WeaknessesStrengths

Delayed foray into 4G LTE servicesThird largest telecom provider in the US High debtSprint's acquisition by SoftBank Declining ARPU

ThreatsOpportunities

High penetration rates and increased churn in wireless segment

Network modernization Strong outlook for high-bandwidth mobile communications Intense competition in the wireless telecom

marketRising demand for the smartphones and the tablets Changes in regulations may affect business

prospects

Strengths

Third largest telecom provider in the US

Sprint enjoys significant market position in the US telecom market. The company is the third largest wireless communication provider in the US market based on wireless revenue. The company is also one of the largest providers of wireline long distance services, and one of the largest internet carriers in the US. While its competitors AT&T and Verizon are considerably large companies, Sprint although significantly smaller in size has a large addressable market. The company by the end of FY2015 had 57.1 million wireless subscribers of which 30.1 million were postpaid, 16.1 million were prepaid subscribers, and 11 million were wholesale and affiliates subscribers. The company is also among the few telecom companies that enjoy a nationwide wireless network. The company was able to maintain the nationwide reach by not only operating its own digital network but also by entering into commercial agreements with third party affiliates. Additionally to enhance its reach, Sprint offers roaming on other providers' networks.

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Sprint Corporation SWOT Analysis

Moreover, the company owns Clearwire, which offer fourth generation (4G) worldwide interoperability for microwave access (WiMAX) services in certain markets in the US. The company also has access to spectrum licenses across the US. The company holds 800 megahertz (MHz), 1.9 gigahertz (GHz) and 2.5 GHz licenses authorizing the use of radio frequency spectrum to deploy its wireless services. Despite disadvantages associated with size and scale, Sprint with its large addressable subscriber base, spectrum and nationwide network reach is equipped to leverage these factors to defend its market position. Additionally, the company has a strong base to implement new strategies to enhance revenues and profitability. Its large subscriber base, network and spectrum will enable Sprint to tap into the emerging opportunities.

Sprint's acquisition by SoftBank

In 2013, SoftBank, a Japanese telecommunications and internet company, invested $22.2 billion in Sprint for an 80% stake in the company. The acquisition strengthened Sprint's balance sheet and provided capital for continued investment in the modernization of its network, which would allow Sprint to upgrade its technology, expand its service offerings and improve the quality and reliability of its product offerings. It also allowed Sprint to leverage SoftBank's operational and technological expertise in smartphones and next-generation mobile networks to enhance its competitiveness in the US. Furthermore, the new combined entity is well positioned to leverage its size to procure equipment and phones at favorable prices. The size also allows the company to favorably negotiate better terms with original equipment manufacturers (OEMs) such as Apple, and cross-pollinate best practices. SoftBank acquisition positioned the company as a stronger player in the US telecommunications industry, enabling it to add new customers and enhance its market share. Further, SoftBank's investment is expected to enable Sprint to benefit from SoftBank's leadership in LTE and improve the operating scale and create opportunities for collaborative innovation in consumer services and applications.

Weaknesses

Delayed foray into 4G LTE services

Sprint is lagging behind its peers in the 4G LTE roll out. The latest LTE based 4G technology was utilized by the telecom industry from FY2010 onwards. Verizon was the first player to offer the 4G LTE market in 2010 followed by AT&T and consequently these companies have a significant lead. They have built a strong presence across the US and Sprint Nextel is lagging behind, being a late entrant. The company will face an uphill task while trying to acquire customers for its 4G LTE services.

High debt

The company is highly leveraged. At the end of FY2015, the company’s consolidated principal amount of indebtedness was $32.7 billion, and had $3.3 billion of unused borrowing capacity. The company recorded a debt equity ratio of 1.5 times in FY2015 and an interest expense of $2,051 million. The company’s high debt levels and debt service requirements are significant in relation to

Sprint Corporation Page 5 © MarketLine

Sprint Corporation SWOT Analysis

its revenues and cash flow, which may reduce Sprint’s ability to respond to competition and economic trends in the industry or in the economy. In addition, the company’s revolving bank credit facility and other financing facilities also require that Sprint maintain certain financial ratios, including a leverage ratio, which could limit the company’s ability to incur additional debt. Sprint’s failure to comply with debt covenants would trigger defaults under those obligations, which could result in the maturities of those debt obligations being accelerated and could in turn result in cross defaults with other debt obligations. Limitations on Sprint’s ability to obtain suitable financing when needed, or at all, could result in an inability to continue to expand the business, timely execute network modernization plans, and meet competitive challenges.

High debt limits the company's ability to raise further capital to fund its growth. Additionally, the company also has high debt servicing obligations making its cash flows highly vulnerable further impacting its ability to fund growth internally. High outstanding debt increases the company's financial risk.

Declining ARPU

Sprint witnessed as significant decline in its average revenue per user (ARPU) per month during 2013-15. The successor company’s postpaid ARPU declined from $63.5 in FY2013 to $59.3 in FY2015 representing a compound annual rate change (CARC) of 3% during the same period. Further, the average retail ARPU of the company declined at a CARC of 2% during 2013-15 from $50.9 in FY2013 to $48.7 in FY2015. The decline in postpaid ARPU was attributed to growth in sales of tablets, which carry a lower revenue per subscriber combined with the impact of subscriber migration to many of the company’s new service plans, resulting in lower service fees. Declining ARPU would further put pressure on Sprint’s profitability.

Opportunities

Network modernization

The company is in the process of modernizing its network to allow the consolidation and optimization of its 800 MHz, 1.9 GHz and 2.5 GHz spectrum into its base stations. The company employed network modernization program, which contributed to improvement in churn rates, enhanced the network quality and led to a decline in the service disruptions. As part of this program, the company modified its existing backhaul architecture to enable increased capacity to the network at a lower cost by utilizing Ethernet as opposed to time division multiplexing (TDM) technology. As part of the program, the company will upgrade the existing Sprint platform that will enable it to offer 4G technologies, including LTE. Further, the company's acquisition of Clearwire catalyzed its foray into 4G mobile broadband. The company further intends to continue to optimize its 3G data network and invest in LTE deployment across all spectrum bands. In addition, Sprint entered into 4G LTE agreements with 15 additional rural and regional network carriers as part of the Rural Roaming Preferred Provider program, in September 2014.

Sprint Corporation SWOT Analysis

According to the industry estimates, the adoption of 4G and LTE is expected to increase exponentially. The estimates indicate that the 4G/LTE smartphone shipments will grow robustly in coming years. The US is expected to contribute significantly to this growth, indicating a strong market for 4G and LTE services in the US. Network modernization will enable the company to sustain market share as the subscribers move to increased adoption of LTE and 4G services. It also enhances the competitive position as its peers like AT&T and Verizon had a long lead with 4G services. As the voice services market in the US reaches maturity, the increase in data revenues is expected to enhance the growth prospects for telecom companies including Sprint.

Strong outlook for high-bandwidth mobile communications

The US mobile broadband market had grown strongly over the historical period and is expected to continue growing in the coming period. The growth in mobile broadband is primarily attributable to the high data consumption by mobile devices, including smartphones and tablets. According to industry estimates, global mobile data traffic is projected to grow at a CAGR of 57% during 2014-19, to 24.3 exabytes per month by 2019. Further, 4G connections are expected to account for 26% of total mobile connections by 2019.

Sprint has robust network infrastructure to support the growing demand for high-bandwidth mobile communications. The company is in the process of modernizing its network to allow the consolidation and optimization of its 800 MHz, 1.9 GHz and 2.5 GHz spectrum into its base stations. Moreover, majority of efforts to roll out 4G LTE on its 800 MHz and 2.5 GHz spectrum bands are expected to be completed by the end of 2015. The company can leverage its leadership position in the wireless market to further drive ARPUs by tapping into the trend of growing mobile traffic.

Rising demand for the smartphones and the tablets

Sprint will benefit from the rising demand for smartphones and tablets in the US. According to industry estimates, the tablet shipments are expected to grow at a CAGR 5.4% during 2014-18 to reach 285.9 million units in 2018. Smartphones and tablets are expected to constitute 87% of the total connected device market by 2018. Further, the smartphones market increased by 19.3% to reach a total of 1.2 billion units shipped in 2014. It is also estimated that the total smartphone shipments will reach 1.7 billion units in 2018, representing a CAGR of 11.5%. Mirroring the global trend, the tablet users in the US are expected to continue to rise. With a range of smartphones and tablets, Sprint is well poised to exploit the demand for these data intensive mobile devices which will enable the company to enhance revenues.

Threats

High penetration rates and increased churn in wireless segment

The wireless markets in the US are saturated. The penetration rate of the US market is more than 110%, with more connections than the population and the market is considered to be saturated.

Sprint Corporation SWOT Analysis

Hence, the company needs to acquire new subscribers from its competitors rather than the first time subscribers in order to expand the business. Starting from 2008 to 2015, the company experienced a net decrease in the retail postpaid subscriber base of approximately 12.7 million subscribers. As the wireless industry continues to mature, the future wireless growth will increasingly depend on Sprint's ability to offer innovative data services to customers, which in turn, will depend on the availability of additional spectrum. The spectrum and capacity constraints will increase in the coming years as mobile data traffic increases at a robust pace. While Sprint continues to invest significant capital in expanding its network capacity, the capacity constraints could affect the quality of existing voice and data services and the ability to launch new, advanced wireless broadband services. Any spectrum solution will require that the Federal Communications Commission (FCC) makes new spectrum available to the wireless industry and allow the company to obtain the spectrum it needs more immediately to meet the needs of its customers. The impending saturation and limited availability of spectrum will impact Sprint's growth prospects.

Intense competition in the wireless telecom market

The company faces substantial and increasing competition in all aspects of its wireless business. Under current FCC rules, multiple licensees, including six or more personal communication service (PCS) licensees, two cellular licensees and one or more enhanced specialized mobile radio licensee may operate in each of Sprint's service areas, which results in the potential presence of multiple competitors. The company has multiple wireless competitors in each of its service areas and competes for customers based principally on service/device offerings, price, call quality, coverage area and customer service. The company's competitors include companies such as Verizon Wireless, AT&T and T-Mobile USA, TracFone Wireless, and CenturyLink, as well as various regional wireless services providers. In addition, Sprint faces competition from providers that offer voice, text messaging and other services as applications on data networks. More than 97% of the US population lives in areas with at least three mobile telephone operators, and 90% of the population lives in areas with at least five competing carriers. This makes the company's environment highly competitive.

Moreover, the US wireless industry is expected to witness price competition in the coming years. All the players in the US telecoms space have either introduced new plans or cut prices to poach subscribers in an increasingly saturated postpaid market. For instance, T-Mobile introduced a number of plans to lure customers from the dominant players. As part of its campaign, T-Mobile started providing financing for phones and other packages, including cheap international rates and approximately $650 to people who switch service. To counter the strategy of T-Mobile, other players in the market have also lowered the pricing of some of their plans. For instance, in 2014, AT&T lowered its monthly fee for 10 gigabytes monthly data share plan to $15 per device, from $40. According to industry estimates, this is the first step in the impending price war across the industry and other players would be forced to cut prices to retain subscribers.

Increasing competition coupled with impending price competition will continue to put pressure on pricing and margins as companies compete for potential customers.

Changes in regulations may affect business prospects

Sprint Corporation SWOT Analysis

The company's domestic operations are subject to regulation by the FCC and other federal, state and local agencies. These regulatory regimes frequently restrict the company's ability to operate in or provide specified products or services in designated areas and require the company to maintain licenses for its operations. Also, the FCC grants wireless licenses for terms generally lasting 10 years that are subject to renewal. The loss of, or a material limitation on, certain of the company's licenses could have a material adverse effect on its wireless business, results of operations and financial condition. Moreover, the development of new technologies, such as IP-based services, including voice over internet protocol (VoIP) and super high-speed broadband and video, could be subject to conflicting regulation by the FCC and various state and local authorities, which could significantly increase the cost of implementing and introducing new services based on this technology.

Moreover, as a precondition to approval of the SoftBank Merger, CFIUS required that SoftBank and Sprint enter into a National Security Agreement (NSA). These provisions increase the cost of compliance with security measures, and limit Sprint's control over certain US facilities, contracts, personnel, vendor selection and operations, which may materially affect its operating results. Furthermore, any new regulations could restrict the company's ability to compete in the marketplace and limit the return it can expect to achieve on past and future investments. Changes in the regulatory framework under which the company operates could adversely affect its business prospects or results of operations.

Sprint Corporation SWOT Analysis

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