WEBVTT - Bloomberg's Butler: Cautious of Sprint's Network Upgrade(Audio)

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<v Speaker 1>And that's a Bloomberg business flash. You're listening to taking

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<v Speaker 1>stock with Gods and Pim Fox on Bloomberg Radio. Sprint

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<v Speaker 1>the shares of Sprint while they sprint it higher today

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<v Speaker 1>by more than five percent. Let's find out why we've

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<v Speaker 1>got John Butler, senior Telecom's analysts for Bloomberg Intelligence. John

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<v Speaker 1>always a pleasure. Thanks, I'm great. You know, I would

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<v Speaker 1>imagine that many investors in Sprint are feeling a little

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<v Speaker 1>good today, although you know it's been a rough ride

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<v Speaker 1>for them. Tell me what's going on in Sprint. They

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<v Speaker 1>talk about reducing capital spending us on, but what's the

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<v Speaker 1>business like at Sprint? Yes, Sprints. Sprints a complex story.

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<v Speaker 1>It's the underdog in the space. It's the fourth largest

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<v Speaker 1>carrier in the US. They're undergoing two things at once.

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<v Speaker 1>They're doing a large network nationwide upgrade. I use their

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<v Speaker 1>greatest asset, which is this high frequency two point five

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<v Speaker 1>gigger hurt spectrum. And it's a complex upgrade because high

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<v Speaker 1>frequencies like that don't travel very far, but they carry

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<v Speaker 1>lots of data, and as you go down to lower spectrum,

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<v Speaker 1>it goes much further in terms of transmission distance, but

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<v Speaker 1>it doesn't carry as much. So Sprint is upgrading cities

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<v Speaker 1>with this high frequency spectrum. Uh At the end of

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<v Speaker 1>the day, they want to market at as having the

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<v Speaker 1>fastest network in the US, and they may have a

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<v Speaker 1>good shot at that. Concurrent with that network upgrade, they're

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<v Speaker 1>doing a pretty major restructuring at the company. They're trying

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<v Speaker 1>to take two billion in costs out of the operation.

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<v Speaker 1>I have to say that part of the story is

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<v Speaker 1>playing out very well. Um. They're on track to do

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<v Speaker 1>to have all two billion out of the business a

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<v Speaker 1>year from now by the end of next March UM

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<v Speaker 1>and are on track to do that. Uh So it's

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<v Speaker 1>an interesting story and it's a story that continues to

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<v Speaker 1>get better. The one thing I'm worried about, we heard

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<v Speaker 1>this today on the conference call, is that they're building

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<v Speaker 1>out that high frequency spectrum using what are called small cells.

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<v Speaker 1>So they're putting in these mini cell sites along city blocks,

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<v Speaker 1>on rooftops all that, and the it's it's killer trying

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<v Speaker 1>to get these municipal rights away. And so they've had

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<v Speaker 1>delaze there which is pushing out the capital spending, which

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<v Speaker 1>means the the actual upgrade of the network, and those

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<v Speaker 1>plans are getting pushed out a bit to next year,

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<v Speaker 1>which is not to say it's not going on, but

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<v Speaker 1>we're having a push out, which is never good for

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<v Speaker 1>any stock. So, John, you talk about taking two billion

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<v Speaker 1>dollars of costs that I want to hear more about this,

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<v Speaker 1>this very ambitious project, But two billion dollars out of

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<v Speaker 1>a company? How many workers can you lay off? What

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<v Speaker 1>was so redundant? It's just it's it's mind boggling. Well,

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<v Speaker 1>you know, it's hard to believe until you go out

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<v Speaker 1>to visit Sprint in Kansas City. They have a massive

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<v Speaker 1>campus out there, um, and they were once a much

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<v Speaker 1>larger carrier, and so they need to right size this

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<v Speaker 1>organization in line with the current revenue run rate um.

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<v Speaker 1>You know, and I frankly I think they'll do it.

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<v Speaker 1>There's lots of areas where you can take out cost.

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<v Speaker 1>It's very expensive to run a telecom network. As you

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<v Speaker 1>lose subscribers and you get smaller because you're losing share,

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<v Speaker 1>you can, as you alluded to Kathleen, you can reduce personnel.

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<v Speaker 1>Uh in terms of the campus. I know they've been

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<v Speaker 1>leasing parts of the campus to third parties and reducing

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<v Speaker 1>their footprint out there. Um, they don't share a whole

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<v Speaker 1>lot in terms of specifics, in terms of where they're cutting,

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<v Speaker 1>in what they're doing. I do know this. They turned

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<v Speaker 1>to every line manager in Sprint and said, we want

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<v Speaker 1>you to come back to us with a plan on

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<v Speaker 1>how you would cut x per cent of costs. I

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<v Speaker 1>forget what the percent was. So it really is an

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<v Speaker 1>organization wide effort at Sprint. And you know, Uh, the

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<v Speaker 1>CFO was speaking recently, not on the call today, but

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<v Speaker 1>I heard him recently, and he said, we have identified

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<v Speaker 1>every single area where we're going to take costs out,

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<v Speaker 1>so we know where that two billion dollars is coming from.

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<v Speaker 1>It's really just a matter of time to execute on that.

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<v Speaker 1>You can't do it all at once. Hey, John, you

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<v Speaker 1>know you mentioned that two point five giga hurts UH

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<v Speaker 1>spectrum that Spring has, right and right. I don't want

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<v Speaker 1>to get two geeky on all this, but there is

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<v Speaker 1>an auction that is coming up at the end of

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<v Speaker 1>the month and it has to do with low band spectrum, right,

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<v Speaker 1>So just explain to people this low band spectrum, uh,

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<v Speaker 1>maybe easier, right, I mean, it can travel, as you said,

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<v Speaker 1>longer distances, and it also penetrates buildings better than the

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<v Speaker 1>higher band spectrum. And that PIM is a very key point.

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<v Speaker 1>Spectrum has different properties depending on where you are in

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<v Speaker 1>the electromagnetic spectrum. In this case, we're talking about radio waves.

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<v Speaker 1>You know, as we move into a data centric world,

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<v Speaker 1>those higher frequencies are gaining in value because people want

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<v Speaker 1>fast download speeds, but the reality is they also want

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<v Speaker 1>service when they're in building. The early cellular networks were

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<v Speaker 1>built with that low frequency spectrum. It was given to

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<v Speaker 1>mobile carriers. It was also given to broadcasters who were

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<v Speaker 1>broadcasting analog signals. Remember analog TV PIM And so analog

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<v Speaker 1>takes up a much bigger, larger amount of spectrum than digital,

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<v Speaker 1>and so as they move to digital, there's free spectrum there.

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<v Speaker 1>It's going up for grabs and it's a very valuable asset.

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<v Speaker 1>Um T Mobile is the one that needs that low

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<v Speaker 1>band the most. They are going to be most aggressive

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<v Speaker 1>in this auction a T and TM Verizon have the

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<v Speaker 1>most in their portfolio, and Sprint is setting it out

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<v Speaker 1>because they just don't have the money. So all right,

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<v Speaker 1>John Butler thank you so very much. Joining us from

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<v Speaker 1>Bloomberg Intelligence PIMA. We gotta wrap it up here in

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<v Speaker 1>San Francisco, home of Bloomberg nine six Radio, you're listening

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<v Speaker 1>to taking Stock. I'm Pim Fox, my co host Kathleen Hayes,

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