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Sprint and majority owner SoftBank have agreed on the details of a large-scale effort to overhaul the company’s sluggish network to make it more competitive with rival carriers, sources close to the plan said.
It’s a plan that CEO Marcelo Claure and SoftBank chief Masayoshi Son have hammered out over the past several months along with network experts at both companies.
Claure teased the broad strokes of the plan at last month’s Code Conference, shortly after returning from a key trip to Tokyo.
“Expect in 18 to 24 months … our network will be No. 1 [or] 2,” Claure said in the onstage interview.
While a boost in speed and coverage would help Sprint attract new customers, it will also add significantly to Sprint’s costs. The company has scaled back its spending on network gear in recent years, but industry experts said Sprint will inevitably have to boost its spending from current levels in order to meet Claure’s new goal.
“The financial impact of a network overhaul can be spread over multiple years, but when you throw down the gauntlet that your network will be No. 1 or No. 2 in the next 18-24 months, it not only suggests a material increase in spending but also some immediate vendor decisions.,” BTIG analyst Walter Piecyk wrote in a research note.
That will also have an impact on Sprint customers, with Claure suggesting at Code that Sprint will either have to do away with unlimited data or, at a minimum, raise prices on such plans.
Claure plans to execute the radical improvements without spending as much as larger rivals have spent on its LTE networks. “If we play the same game as our larger rivals are playing, we can’t win,” said one source close to the company. “They’ve got larger scale. Like any entrepreneur, we have to do things differently.”
Piecyk said that Sprint will still probably have to boost its capital spending by a third over current levels. Sprint is spending about $5 billion per year, down from a $7 billion annual rate in 2013 during its last network overhaul. “We think it will strain credibility if Sprint does not increase its annual capital budget by at least 35% when it officially announces the Next Generation Network project, especially in light of Claure’s lofty goals,” Piecyk said.
The next step is actually signing contracts with the networking companies that sell and install the gear that Sprint needs. The company has put out a request for bids from such companies, sources said.
A Sprint representative declined to discuss the cost or specifics of the network plan.
Spectrum is another issue for Sprint. The company has plenty of spectrum in the 2.5GHz band, which improves outdoor coverage and the ability to deliver high overall speeds. However, lower-frequency spectrum is what is needed to improve coverage indoors, where the bulk of data traffic occurs. The Federal Communications Commission is holding an auction for such spectrum next year, using airwaves previously held by TV broadcasters. It is unclear to what extent Sprint will bid in such auctions.
A recent auction for a less attractive swath of spectrum fetched higher-than-expected bids.
As for how Sprint will pay for all this, Claure indicated that Son is ready to pay up.
“We know exactly how we are going to fund it,” Claure said. The company could choose to sell some assets, but Claure added that Son has “made a pretty strong commitment” as well.
“I’m going to build a strong network,” Claure promised. “We’ve put a relentless focus on getting our network better.”
This article originally appeared on Recode.net.
