Sprint Nextel (Overland Park, Kan., U.S.A.) may be forced to abandon the biggest advantage it has over its rivals - unlimited data services for a flat fee - because of heavy data users and a shortage of wireless airwaves.
Moreover, the increasing likelihood that AT&T's (Dallas, Texas, U.S.A.) plan to buy T-Mobile USA (Bellevue, Wash., U.S.A.), the nation's fourth-largest mobile operator, will fail may have the paradoxical result of making Sprint's position even more untenable, according to analysts who follow all three companies.
Sprint, the nation's third-largest mobile service provider, is planning to upgrade its network with the latest mobile standard, Long Term Evolution (LTE). But, it is launching that service with only half the wireless airwaves bigger rivals Verizon Wireless (New York) and AT&T have assigned, leading experts to suggest that the popularity of Sprint's unlimited data plan could put a strain on the network or slow down web surfing speeds.
Sprint has assigned just 10 megahertz of spectrum for the launch compared with its rivals' 20 megahertz, analysts say. It will have to reassign airwaves being used for other services in order to expand its capacity for LTE.
Unlike AT&T and Verizon, which cap data use to stem overcapacity issues brought on by heavy users, Sprint is the only large U.S. carrier still selling unlimited data for a flat fee to users of smartphones, including the Apple Inc (Cupertino, Calif., U.S.A.) iPhone, on its current network.
"It's a very bare-bones implementation of LTE," says Tolaga Research (Newton, Mass., U.S.A.) analyst Phil Marshall. "The risk is, if you don't have headroom as your LTE subscriber base grows, then the speeds will go down."
In that situation, Marshall does not see Sprint being able to continue to offer unlimited services.
"Unlimited is going to kill them," he said. "I think they're going to have to back off from the all-you-can-eat plan."
Unlimited data is a strong selling point for Sprint, which has been struggling for years to retain customers. For Sprint to keep the marketing advantage it has over rivals, one option could be for it to institute usage caps that are considerably higher than those of its competitors.
"That's a lever they can play if they run into being constrained," said an industry source who asked not to be named due to a lack of authorization to speak publicly. "It's inevitable that they will eventually have to put caps (on their data use)."
Sprint, which is spending $7 billion to upgrade its network to LTE by the end of 2013, says concerns about its capacity are overblown, arguing that advanced technology allows it to make the most of its spectrum resources. Bob Azzi, a Sprint executive in charge of the company's network, said the company's plans assume that it will keep its unlimited data service during the LTE rollout.
"I don't consider it a headache," says Azzi. "We have a good understanding of the nature of those plans and what they do."
Azzi added that the section of the 1,900 megahertz spectrum band Sprint has set aside for LTE is currently unused. He also plans to reallocate spectrum in its 800 megahertz band to use for the high-speed service by early 2014, provided it can secure regulatory approval to do so. That spectrum is currently being used by the aging iDen service Sprint hopes to shut down in mid-2013.
Sprint is also in talks with Clearwire Corp (Kirkland, Wash., U.S.A.) its majority-owned venture, about expanding their partnership to cover LTE. Sprint currently depends on Clearwire's network for its fastest service based on WiMax technology, and the latest talks are aimed at allowing it to piggyback on Clearwire's LTE to help it boost capacity in the "hottest of hotspots" by 2014 when Azzi says Sprint will need more capacity.
But the future of Sprint's tempestuous relationship with Clearwire is murky since it is not yet certain if Clearwire will raise the roughly $1 billion in new funding it needs to upgrade its network to LTE.
Clearwire lost one-third of its value after Sprint said on October 7 that a bankruptcy filing by the company could be "constructive." Clearwire shareholders again fled on November 18 after the company said it may skip a debt interest payment due December 1. Many analysts saw that pronouncement as a negotiating tactic to try to force Sprint's hand into an agreement with favorable terms for Clearwire.
(Reporting by Sinead Carew; editing by Peter Lauria and Matthew Lewis)