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Dan Hesse Speaks at the JPM Global Tech/Media/Telecom conference


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You can listen to the webcast here:

http://investors.sprint.com/CorporateProfile.aspx?iid=4057219

 

Notes:

 

Opening by Dan:

Shareholder votes on pay was over 80%+ approve

American customer satisfaction Index results - Sprint #1, most improved

Employee morale are at all-time highs

Customer care costs are down to $2 billion/year from $3.7 billion/year

Closed 29 call centers, fewer credits.

Took 85% of the rate plan combinations out of the system, reducing billing and IT costs by 1/3rd.

Increased the number of customers on the Sprint platform by 42% in 2 years (36 million to 51 million)

Apple is rated #1, like sprint was rated #1, people love apple because it is so simple - Sprint is simple too with simply everything!

Typically over 40% of our iPhone customers are new to Sprint. It's like the analogy of Reese's when peanut butter met chocolate, when the Apple customer base met the Sprint --- basically liked at what Sprint was doing, we lined up perfectly.

 

Question 1) How do you grow the business when the market isn't growing

Dan- Look at wholesale and prepaid for growth. Wholesale market lets these niche payers go after different segments Sprint doesnt want to address, but lets sprint participate in, and adds scale to Sprint's network. Postpaid growth will come from higher ARPU.

 

Question 2) Competitors are using Data buckets to drive higher ARPU - how will sprint deal?

Dan- Eliminate lower tiers and go to top tier right away (80 dollar plan).

 

Question 3) Pricing vs. peers

Dan- We like where we are at. We are in the right spot.

 

Question 4) How will sprint stay unlimited when competitors are not?

Dan- We watch usage, we are not attracting data hogs from other networks. We have not seen a change in usage patters of the customers that have moved to Sprint since our competitors have gotten away from unlimited and we'll continue to watch that pretty closely.

 

Question 5) Any price increases that were too much?

Dan- I don't think so, I don't think we will push any further. We've gone right up to the line but not over it.

 

Question 6) Trading growth for profitability?

Dan- Absolutely. Customer lifetime value.

 

Question 7) Increase growth or focus on maximizing cashflow?

Dan- Cash flow

 

Question 8) First half or second half of the year - which will be stronger?

Timing of Network vision, upgrades, etc make it hard to say. Focus on the year, not the month-to-month.

 

Question 9) NETWORK VISION status???

Dan- Major project, not easy. Very serious project. We feel we will execute on with excellence. Challenges that we dislike the most are outside our control (approvals/zoning/etc). We believe the technology risk, if you will, is extremely small, if not zero or close to it.

 

We are still on plan, but every week when you go over all of the different things you're measuring week in and week out, some things are going to be green and yellow and red and next week it's different things.

 

But we are still very confident that we will build Network Vision on plan from a time point of view and on budget financially.

 

Q10) Network vision management - time question...

Dan- Spending more Sprint time and more Sprint attention on it than we would like to make sure we're meeting the dates. And I'm looking forward to getting to the point where we can provide a little bit less oversight and it's just with the vendors.

 

Q11) Timeframe?

Dan- We aren't there yet, hope we get there soon.

 

Q12) Industry consolidation?

Dan- Yes, there is room for some consolidation

 

Q13) Spectrum consolidation?

Dan- Limited resource, you don't want to see barrier to entry. FCC is cognizant of not having too much concentration in spectrum.

 

Q14) Sprint merging or acquiring when Sprint has more free time once network vision is under way?

Dan- In a perfect world we would execute network vision in 12/13 and then consolidation in 2014 (when sprint's stock price is higher).

 

Q15) Using stock for consolidation - is it too low?

Dan- Shareholder value...

 

Q16) Device subsidy negotiations?

Dan- Device-by-device basis. Very complex, blah blah blah, customer lifetime value.

 

Q17) VoLTE?

Dan- We do plan VoLTE, no date yet.

 

Q18) iDen shutdown?

Dan- End of 13, facilitate the migration of iDEN to CDMA, gradual increase over time. We blew it with QChat. We can't support iDEN moving forward. We will lose some customers that are a little annoyed by the shutdown.

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Erik Prusch speaks at the same event:

 

Q1: update on clearwire

Erik - Lot of progress, lot of progress signing Leap as a wholesale customer, as well as a couple of smaller ones (NetZero, Simplexity, etc).

 

Controlled costs, we have lots of spectrum.

 

Q2: Retail strategy?

Erik - Online vs. brick and mortar, lower price points for devices.

 

Q3: Stable revenue?

Erik - Yes, we have a unique product and retail generates cash for the rest of the business, we want to grow it. It's different, gives choice, unlimited!

 

Q4: WiMAX wholesale?

Erik - Yeah. There is still opportunity. Key point is access to gigs at a relatively inexpensive price.

We like our defined contract with Sprint. It's cash-rich for us.

 

Q5: LTE build?

Erik - This is go slow to go fast. Fundamentally for us, building an LTE overlay is a very surgical type of planning process. This isn't about coverage. It's about capacity. It's about capacity in hotspots. And it's about capacity in the hotspots we know we can monetize very well, which is the urban cores. So, when we're identifying sites, when we're planning our LTE network, we've spent a lot more time in the planning phase of this than we did historically and under WiMAX or under a coverage network. So we are going slow to go fast.

 

In terms of vendor selection and in terms of the planning process for the LTE overlay network, that is all going as planned today. We continue to watch this very carefully and we expect to be able to talk about vendors probably in the Q3 timeframe.

 

Q6: Spending timeline?

Erik - We went immediately into the planning phase. We had done a little bit up-front. But we are going site-by-site, really trying to maximize the amount of gigs that we're going to get on any individual site, by staying true to the focus of being in the urban core, trying to hit the otp markets in the U.S., and that first 5k sites is a very important 5k sites.

 

We want to make certian that we're generating return on investment and we need to make certain that we can attract other customers as well. So it's a much more intricate planning process.

 

Q7 LTE Build timeline?

Erik: Our objective right now in phase 1 is to get 5k done by mid-year next year with a build to about 8k coming sometime thereafter. We have 16k sites today, so that means we'd get to about half of the sites. I don't know that we're going to stop there. Of course, we think that there's a great opportunity and we think that there's a great need for capacity in the marketplace today, and that's not going to end any time soon. But in terms of our initial phase, what the capital we've got in hand to be able to do, it's really 5k sites and we think we can generate significant revenue from that.

 

Q8 LTE density?

Erik: Urban core. ... And you've heard a lot expressed in the press around other carriers' networks failing or not doing as well in certain specific markets. We'll address that.

 

That's what we are trying tod o, is ultimately provide a ubiquitous solution for carriers to be able to adopt, allows us to monetize it, allows them a service level that they've never been able to have, access to capacity that they haven't seen before. So that's how we prioritize and we've also made certain that from a Sprint standpoint, they're our most important partner at this point in time, we need to make certain that they're going to achieve their objects as well.

 

Q9 Working with Sprint?

Erik- We had good foresight. We had good foresigh that we might get into a situation where we were going to do an LTE overlay.

 

We're able to reuse a lot of the equipment that's on their towers. We're able to do the overlay for relatively inepxensive price. Again, sometimes it's the software, line cards, sometimes there's some equipment, but it's reusing the majority of the infrastructure that's out in place.

 

Relative to Sprint, we continue to have dialogue with them, particularly outside of our footprint. I think the Real question is, if the economics support growing outside our footprint and leveraging somebody else's network, such as SPRINT, we should evaluate that, and we should continue to look at different opportunites for us to make our capital go further. Vision is case and point for that, which is, can our capital go further if we were to locate on SPRINT SITES AND SHARE SOME of the infra costs together>

 

Q: big picture?

Erik-

Yeah. There has been nothing that hasn't supported the direction we've been heading in this business. I think we

predicted all along that data was growing rapidly. It continues to grow rapidly. We also suggested that the need for

capacity was going to be a lot sooner than anybody had predicted. That seems to be the case given all the movement in

the industry towards trying to get little bits of spectrum. All of those things are going better than we expected, frankly,

or slightly better than we expected, but with a lot of foreshadowing. We still think that we're in that perfect position

with good usable spectrum with a global harmonized band, a lot of support on a global basis for building out a 2.5

LTE-TDD network. We also try to identify for people the advantages of TDD versus FDD. We suggested that this is

really what's going to be the standard for data, is using a TDD technology.

All of these things, I think, have come true through time and just kind of emboldened us in terms of our strategy. We're

still the only ones out there today who have a wholesale model with free and usable spectrum in size. That means we

can bring capacity to a much needed industry. And we've seen a lot of steps that other players have made in terms of

disincenting customers from using data. We don't think that, that's sustainable on a long-term basis and we think that

some players are going to be able to differentiate themselves depending on their access to greater capacity. Be that if

they get access to small pieces of spectrum, that may hold for a little while, but it won't solve the problem because

ultimately data will continue to grow well into the future, and there doesn't seem to be an end in sight for it.

So our business model is right. The way that we're addressing the market, I think, is right from a prioritization

standpoint. We seem to be in a great spot and in a lot better spot than frankly we were a year ago. But we're going to

continue to push on this and make certain that we're providing capacity to whomever needs it and whenever they need

it. And that I think is the benefits of the business model itself.

 

Q: clearwire = big wifi network?

Erik -

No. I don't like the comparison. What we offer is a ubiquitous solution into a marketplace that allows carriers to control

data. And that's an important factor. If you think about from a security standpoint, if you think about it from a

monetization standpoint, what you're seeing is, you are seeing trade-offs between voice into data and then even with

data, how do you monetize data over the long term. I think everybody in the industry wants to see growing revenues,

growing profit streams, and they see data as a way to do it. Off-loading into Wi-Fi networks where you're not

necessarily in control, where there is going to be capacity constraints, where there is a lot of work to be done by end

users, it's a challenge, it's absolutely a challenge.

Whereas what we're providing from a capacity standpoint is like giving everybody access to greater spectrum. That

allows them to make certain that the quality of service is there because we represent the quality of service across the

entire network, the security is there because we represent the security and their ability to monetize it, whether it's

through service plans or other offerings that will come down is there as well. I should note, everyday there are new

business models that are being created on data. There is nothing more exciting in this industry than the data

expectations for growth.

How those business plans come together will be a large part whether those elements are there, security, quality of

service, ability to control, ability to scale, we're going to have that. We're building the fattest pipe in the industry, no

doubt. And that fattest pipe means the best speeds, the greatest capacity and probably the lowest cost per gig available

in the marketplace. That's the ultimate objective for us.

Unverified Participant

 

Q - handsets?

Erik-

Yeah. So what we announced at CTIA was a relationship with Qualcomm, and we consider that to be a very, very,

important relationship for us. Basically with their Snapdragon chipsets, it allows kind of coexistence of both TDD

and FDD onto a single chipset. That is the most important thing. It also has to be done at a cost-effective price and it

needs to get into all the devices.

The expectation is that smartphones will be available sometime in the second half of next year, kind of on track. We

still expect that to happen. We still expect that anybody who is creating the next generation of smartphones will be

interested in getting access to that level of capacity.

So it starts with chipsets, it then goes into devices, devices have to come out on time, and they also have to be capable.

That means being able to fall back to one another, which is necessary from a wholesale network standpoint. We

understand that, Qualcomm understands that real well, software is being developed. So I think we're still on track on

chipsets, I think we're still on track on devices, and we've got partnerships to show that progress that we have made, all

of which is going to mean that our network is enabled and that it can scale with the number of devices that are expected

towards the latter half of next year.

 

Q - chinese partners?

We're certainly focused on the ecosystem. Right now, our ecosystem, TDD-LTE, Band Class 41, is supposed to be able

to address up to about 2 billion population, world population. When we talk about global harmonized bands, that means

a solution that cuts across continents and cuts across the world population more effectively than ever before.

We are as close to a world band as there has ever been with our spectrum. That's important. Driving the ecosystem, one

of the benefits that the Chinese bring other than some technology leadership, is that they bring a very significant

number of subscribers, which again brings critical scale and mass to those chipset and device manufacturers. That

allows us to get to very cost-effective chipsets and devices, but also keeps us in the forefront in terms of

the development of the technology and improvements along the way.

We're ecstatic about the GTI and the leadership that the GTI consortium has been able to make. That forum itself has

allowed for standardization around Band Class 41 and TDD to be front and center, and we've seen a lot of progress by a

number of carriers across the globe. We're a main carrier for that in the United States considering that we've got 46

billion megahertz POPs of spectrum that are dedicated to 2.5, and as we're dedicating it to TDD-LTE.

So that poses a great opportunity for us to collaborate, continue to collaborate on the technology, continue to

collaborate and get the benefits of that critical mass. But it also opens up other avenues, such as roaming and things like

that, that we can do in the future

 

Q- why TDD? Verizon and AT&T went FDD...

Erik-

Yeah. Again, I don't think it's a right and wrong question. I think it is that all of the spectrum

that most of the carriers acquire through time was paired spectrum. They were required to go FDD. They didn't have an

option. They don't have a choice to go TDD. I'd also suggest that the industry has evolved rapidly. There is a lot of

change going on in this industry and data wasn't even a forethought five to seven years ago. We didn't even anticipate

the smartphone penetration back seven years ago that it is today.

The advantage for us is we've gotten to understand it very well. Our customers aren't limited. We've gotten to see what

the underlying trends in terms of data consumption are. And the advantage that TDD has over FDD is it doesn't require

an up and down like in proportion with one another. That means when you think about usage on an individual level,

we're able to dedicate more of our spectrum to a down-link versus an up-link because that's what customers want. They

download more than they upload.

So the idea of paired spectrum was perfect for voice. Well, we're not in the voice business at this point in time. VoLTE

and things like that may end up getting into that position for us and maybe it'll be a great opportunity for us down the

road, but it still doesn't require paired spectrum the way that it has been done or executed in the past. So we're more

spectrally efficient. If you can be more spectrally efficient and provide greater levels of service, greater levels of

capacity and have choice, then you're going to probably go TDD. There are a lot of carriers out there who have elected

exactly that. If you've got paired spectrum, you'll use what you hav

 

Unfortunately, that means that you're going to be over-utilized on your down-link and under-utilized on the up-link,

just by the definition of it. That's where we stand. We have the choice. We could have paired our spectrum. There was

nothing that precluded us from pairing our spectrum, but we chose not to because we didn't need to do it, and frankly,

we could be much more efficient not doing it. So that's why.

Ultimately, a carrier shouldn't really care at the end of the day as long as that capacity is met, as long as the

interoperability of the networks exist, as long as the chipsets can handle both, and it doesn't require a lot of equipment

in the devices or on the towers or anything else that would not be of benefit for them from a return on capital or an

investment made into the ecosystem.

 

Q- cash?????

Yeah. I mean, in the past, we've had a combination of equity and debt in terms of funding the

business. We left the quarter with $1.4 billion in cash. We feel very good about the position from a cash standpoint. We

feel very good about the progress we've made in terms of generating operating cash in Q1, getting the company to

EBITDA positive in Q4, with a good understanding about what the next two years will bring for us and making certain

that we can fund this LTE overlay build.

The equity offer that we just recently announced is a controlled equity offer. It's controlled. We determine it. And it's

only for $300 million. It's not that significant in the whole realm of things from a cash standpoint, and it allows us to

continue to access the equity markets if and when we want to. The majority of the cash, though, and the majority of the

funding that we've had, have always come from a combination of debt and equity.

Going forward, we still continue to pursue the same avenues that we've been talking about for several quarters now. We

still have the opportunity to sell spectrum. We understand the benefits of selling spectrum. We will still consider selling

spectrum. We're trying to commercialize this business still, and we want to make certain that our wholesale commercial

operations can produce a significant level of revenue and meet the needs of our customers. We still have the ability to

raise equity as demonstrated by this. And as far as debt's concerned, we're fairly full on the balance sheet side, on the

debt side. It doesn't mean that there won't be opportunities in the future, but at this point in time, we're focused on these

other two.

 

Q: Vendor financing?

 

No. Well, we certainly wouldn't do vendor financing ahead of announcing any vendors or

ahead of any purchase orders that might be put in place. The time for vendor financing is right around that time. And

again, we expect it to be a second half of the year or Q3 kind of incident for us to purchase the equipment, that's when

we would expect to be announcing vendor financing agreements. That's still a very capable vehicle for us to finance

this business is using our vendors balance sheets to the best we can and on favorable terms. So we are looking for that

and we've made good progress on that.

 

Q: Sell Spectrum?

 

Again, it really comes down to making certain that people understand we're going to be prudent

around the spectrum. There are some short-term benefits to selling spectrum. There are some significant capital benefits around spectrum. But we have to understand that selling the key asset, key hard asset that we have, is something that

we will do very well from a control standpoint and from a prudent standpoint. This is not about just selling off a piece

and precluding opportunities to sell gigs to customers. We will evaluate it as we go on.

We've seen a lot of public reports of people interested in spectrum. We've seen a lot on the industry side in terms of

movements in trying to get or gain 5 megahertz of spectrum here or 5 megahertz of spectrum there. We have that rare

opportunity with our spectrum. It's contiguous. It's globally harmonized. It's 160 on average across the top markets in

the U.S. It's 46 billion megahertz POPs of spectrum. That allows us to do something very unique in the industry, very

unique.

It allows us to build the fattest pipe in the industry bar none. That means the fastest speeds, and particularly with

channel aggregation, which I'm not sure whether you caught in on our last earnings announcement, but that we were the

first band that has been approved from a standard standpoint on channel aggregation. That means building

40-megahertz pipes. This isn't something that anybody else is capable of doing. I mean, it is a definite competitive

advantage. That means the fastest speeds and the greatest capacity in the industry. That scale will ultimately give us

competitive advantage on a cost basis.

And that's something that we want to convey or confer to our partners. We want them to succeed with differentiated

offerings in the marketplace and allow them that same access that we've had. So we've got to be prudent with those

spectrum assets. They are absolutely the life blood for us and at the same time we realize that we could sell pieces of

spectrum and it wouldn't harm our overall value proposition.

 

Q: Why would AT&T be positive for Sprint? Conflict?

So, I won't speak for Sprint. I'll kindly ask you to ask them that question. But in terms of who

we're going to attract, there's a benefit for us to have the scale in terms of the gigs and subscribers that are on our

network. We've always said all along that we're interested in attracting as many customers as we possibly can, and

certainly all of the big four are in that area as well. What any of the big four provide for us is additional scale, and we

provide the capacity for them to be able to meet the needs of their customers. So we're not precluding anybody at this

point in time. We've got the ability under our existing agreements to work with anybody, and we will continue to try

and do so, and we're hopeful that we're going to bring on – and we're committed frankly, to bringing on additional

wholesale customers throughout this year.

But it means that anybody who does come on to our network is going to have the benefit of the network itself, is going

to have access to something that nobody else is able to create themselves, whether through buying, leasing, any other

kind of structure from a spectrum standpoint, because there just isn't enough out there. So they need to find solutions. I

don't think M&A is the way for these companies to find solutions. I think a wholesale model actually works exactly in

that way, which is allows them access, allows them the benefits of the scale, and frankly gets them to a point where

they will have a differentiated offer versus any players who don't adopt our wholesale business. So we're looking at

this, I think, in the right way. I'm hopeful that we're going to make tremendous progress this year, and I'm hoping that

anybody who comes on to our network frankly can leapfrog the other players who have not come on to our network.

 

Q: AT&T and Verizon don't use clearwire - why?

 

Yeah. I mean, it's – it really is multifaceted. There's nothing that, again, is a gating factor today

for anybody to come on to our network. In fact, we've made so much progress across the ecosystem in the last six months, it's pretty incredible. The devices – again, Qualcomm is a perfect example of that with their chipsets, the

devices are already in place. Unfortunately, they're not able to be used the way that they intend to. I empathize with

you, which is the key factor in this industry is the service, it's not the device itself. The devices are capable of doing a

lot more than they are today. What we have to do is make certain that capacity provides the underlying infrastructure

for the service, and a compelling value proposition for those end customers as well, which I don't think is necessarily

done through caps and tariff structures that disincent usage.

So, the only thing at this point in time is gaining the commitments – well, first, understanding the ecosystem,

understanding the capability of it, getting carriers comfortable that their customers will have a great quality of service,

making certain that those customers also understand that there'll be handoffs back and forth. And I think the chipsets

now are in that position to be able to do that, and then getting the devices themselves out. I think it's a matter of just

when, it's not a matter of if and the when is we expect to be a 2013 opportunity as our network is coming up.

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This article kinda goes along with the interview above. I do believe somethings a brewin'. Hesse's being coy, but it sounds like he has something up his sleeve.

 

http://www.fiercewireless.com/story/sprints-hesse-regulators-will-be-open-more-industry-consolidation/2012-05-16

 

Sprint Nextel (NYSE:S) CEO Dan Hesse said he thinks regulators at the Department of Justice and FCC would be open to wireless industry consolidation if the resulting combination created more competition for Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T), the nation's two largest carriers.

"I actually believe that Washington would be receptive to consolidation to provide more balance to the big two," he said, speaking Wednesday at the 40th Annual J.P. Morgan Global Technology, Media and Telecom Conference. While Hesse said it depends on who the individual regulators are deciding proposed transactions, he noted that he was very close to the process last year as regulators ultimately blocked AT&T's proposed $39 billion deal for T-Mobile USA, which Sprint vigorously opposed.

 

"I honestly believe that both the Department of Justice and the FCC have a very open mind with respect to any industry consolidation and want to see a competitive industry," Hesse said. He said in an ideal world, Sprint would not have to think about potential M&A activity until after it has largely completed its Network Vision network modernization plan by the end of 2013, but he said that may not happen.

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