Sprint Finalizes Plan to Trim Network Costs by Up to $1 Billion

Sprint has finalized plans for a radical overhaul of its cellular network that is expected to save the carrier up to $1 billion, Re/code has learned.

The nation’s fourth-largest carrier has talked publicly about shaving $2 billion in overhead as it aims to revive its fortunes and end six straight years of losses.

Sources familiar with the initiative said Sprint plans to cut its network costs by relocating its radio equipment from tower space it has leased from Crown Castle and American Tower to spots on government-owned properties, which costs much less. This process could begin as soon as June or July.

Tower leases are a major component of the carrier’s network cost. Some of that is the expense of buying and maintaining the cellular gear itself, while another big cost is renting the space on which it sits.

The carrier also is seeking to reduce its dependency on AT&T’s and Verizon’s high-speed, fiber-optic cables that provide links to the cellular towers and mobile switches — known in networking parlance as the “backhaul.” One thinks of cellphones as eliminating all the wires, but in actuality the traffic often travels wirelessly only as far as the cell tower. It then often travels over landlines owned by AT&T and Verizon.

Sprint has been been cutting annual checks of $1 billion for backhaul to its two big rivals and, not surprisingly, would prefer to put less money into those companies’ hands. The new plan would instead use microwave technology for this purpose, an approach previously used by Clearwire, which Sprint acquired in 2012.

These network changes are the latest in a series of belt-tightening moves outlined last fall that would include layoffs. Sprint CEO Marcelo Claure has said he would like to make the cuts by Jan. 30 to allow employees to take advantage of a more generous severance plan that is being ended. Sources say Sprint plans to make significant numbers of the cuts on Jan. 22.

The struggling carrier also said it would sit out the next major wireless airwaves auction.

Sprint is in a tight bind as it seeks to improve its network, widely seen as the weakest of the four major carriers, while at the same time cutting costs. To manage this task, the company is trying to do as much as it can to find non-traditional methods of expanding the network and financing those efforts.

While holding the promise of improved efficiency and even better performance down the road, the network changes could bring on significant risks. Sprint’s past network upgrade projects have caused outages and other headaches that drove Sprint subscribers away and solidified the company’s reputation for having the weakest network.

“It’s always a concern when you are putting a new infrastructure strategy in place,” said wireless industry consultant Chetan Sharma.

One person familiar with the initiative, dubbed the Next Generation Network, predicted it would result in another wave of network hiccups. Sprint’s plan also could result in less coverage in regions of the country where Sprint has few subscribers and sees little financial benefit.

“Getting there is going to be a nightmare,” said the source, who requested anonymity because he is not authorized to speak about the matter. “It’s going to be very, very disruptive.”

Sprint’s hope is that the changes are worth the pain. Chief Executive Marcelo Claure has pledged to have the No. 1 or No. 2 network in 80 percent of the top 100 markets in two years’ time. The new approach could lead to better service in urban areas as Sprint fills out its network with thousands of small antennas (they’re called “mini macros”) to bolster the network’s capacity.

Claure has spoken broadly about addressing Sprint’s network expenses as part of his effort to trim spending, including reducing backhaul spending but has not spoken publicly about the change in tower strategy.

There are only so many good spots to place towers and only so many places cities allow them and only certain landlords willing to lease space. Historically, companies like American Tower and Crown Capital have handled a lot of these tasks for Sprint, but at a significant price.

Sprint is expected to lease communications towers from a Newport Beach company, Mobilitie. The privately held company funds, installs and operates communications towers and other infrastructure that carriers use to power their high-speed networks. Its website describes the company’s focus as “driving costs down over time for our carrier partners.” The towers would be located, where possible, on government-owned right of ways, which are typically far cheaper than space rented from private landlords.

Sprint declined to comment on its network plans, while Mobilitie did not respond to requests for comment. American Tower and Crown Castle could not be reached for comment.

Update: Shares of American Tower and Crown Castle, which had been mostly flat at the beginning of trading Friday, headed lower following Re/code’s report. Shares of American Tower changed hands recently at $88.98, down $3.23 or 3 percent. Crown Castle was down $4.90, or nearly 6 percent, to $79.07. Sprint, meanwhile, was trading at $2.91, off nearly 9 percent.

This article originally appeared on Recode.net.

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