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Mobile Network Operators start to boast about capex again, but Sprint’s debt options are narrowing

As operators start to come out from the shadow of the global economic crisis and to plan for the next wave of network upgrades, they are starting to boast about their investment plans, not be embarrassed by them. Orange, in particular, was vocal in Barcelona about its mobile and fixed built-out programs, and linked them directly to revenue growth – a line also followed by some of its fellow Europeans with major infrastructure roadmaps, such as Vodafone and Deutsche Telekom.

Orange’s deputy CEO Gervais Pellissier said the operator will spend more than €15bn on upgrading its infrastructure across Europe, continuing its fiber-to-the-home roll-out – which has reached 2m homes to date in France and Spain – and focusing on fixed/mobile convergence. Within the €15bn capex figure over five years, one-third is earmarked for fiber and the rest for the mobile core and RAN.

Pellissier said that network improvements were driving differentiation, new services and directly contributed to increased ARPU – especially in Spain, where ARPU has risen by €3-5 a month on the back of new technology and content.

He told that “LTE has not reached its full potential yet. There’s so much more to come from LTE. There are 100m mobile subscribers in Europe, around 18m of which are on Orange 4G as of the end of 2015 – we’ve got a lot of work left to do.”

Across the pond, AT&T is also raising its capex budgets after 18 months of trimming them. In the fourth quarter of 2015, its capex spending rose to $6.8bn, from $5.3bn in Q315, and the carrier is projecting a total of $22bn for 2016, which would be about $1bn more than last year. Nearly $10bn of that will go to enhance business services, mainly on the basis of network expansion.

While AT&T has fiber and quad play assets to leverage, Sprint has far fewer options to boost revenues, and has now spent almost eight years in the red, while its debt level is $34bn, more than twice its market value. The latest move to address this by Masayoshi Son, chairman of Sprint’s majority owner Softbank, is to create a Softbank subsidiary to lend money to Sprint. According to Sprint’s CFO Tarek Robbiati, this unit will take Sprint’s wireless equipment and some of its spectrum rights as collateral for loans worth $3bn to $5bn a year.

“Spectrum is one of the most valuable assets they have,” said Dave Novosel, an analyst with Gimme Credit. “It gives them something to be measured on, since Sprint can’t be measured on cashflow.” But the unusual approach suggests that Sprint and its owner are running out of options to reduce debt while still allowing the carrier to make much-needed investments to complete its 4G upgrades and its densification program. This year alone, it has to make $2.3bn in debt payments, and $10bn is due by the end of 2020.

In November another SoftBank subsidiary paid Sprint $1.2bn for most of its phone inventory, which the US carrier is now leasing back, and Sprint is also planning to site more of its base stations on lower cost land such as government sites. It has also announced a $2.5bn round of cost cutting, which has helped it boost cash and cash equivalents by 12% to $2.2bn.

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