Sprint: CDMA Direct Connect ramps up
Though only in three markets today, Sprint said nationwide rollout to follow, taking push-to-talk pressure off of the iDEN network
As Sprint’s operating and customer losses continue to mount, the company today revealed it plans it plans in the coming months to move its QChat CDMA push-to-talk technology from commercial trials to large-scale launch, reducing its reliance on the Nextel iDEN network for its industry leading Direct Connect service.
At its earnings call today, Sprint CEO Dan Hesse said Sprint will extend the Qualcomm-built Qchat platform to 40 new markets in the coming months, and by the end of the year it aims to have 80% of existing CDMA 1X EV-DO revision A network outfitted with the upgrade. The operator currently sells QChat push-to-talk service to business customers in Kansas City, Denver and Cincinnati, linking it to the Nextel service operating over the iDEN network.
With QChat going nationwide, Sprint can move more traffic to the VoIP-based 3G network, allowing it to sell high-speed data services and offer a greater selection of phones to the business and public-safety workers who are push-to-talk’s prime clients. Sprint could also feasible begin to shift its PTT customer base to CDMA in preparation for sun setting the legacy iDEN network or selling it off to another company, neither possibility of which Sprint has acknowledged considering. In fact, Hesse today reiterated Sprint’s intentions to invest in the iDEN network.
“Based on our economic analysis so far, it looks like our shareholder return would be better by continuing to market the differentiated and unique advantages of both networks,” Hesse said. “That’s why we’re reinvigorating push-to-talk on Nextel Direct Connect and also introducing it on CDMA.” Hesse, however, left the door open for just such a scenario. “Having QChat on CDMA gives us alternatives if we decide to make a change in strategy going forward.”
Sprint is reportedly considering several restructuring scenarios, which could leave the company either leaner or part of a larger global operator. The first and most likely of those changes has already come to pass: Sprint announced last week an agreement with Clearwire to create a new WiMAX venture with funding from Intel, Google and cable operators. In addition, The Wall Street Journal and other outlets have reported that Sprint is contemplating spinning off or selling the Nextel business unit after failing to fully integrate the operator into business in three years. Also making the news rounds are reports of Deutsche Telekom buying Sprint and combining it with T-Mobile USA.
If Sprint were to get rid of Nextel, it would most likely want to keep some of its lucrative public safety and business customers tapping into the Direct Connect network. With QChat online it could have the means of tapping into the market if not transferring its customer base over before a sale or public offering was final. Of course, those 3 million public safety customers are a good deal of the value of Nextel as a separate entity. Nextel continues to account for a good deal of the postpaid subscriber loses at for the whole company (Sprint saw 1.1 million net subscribers flee in Q1). Cannibalizing the iDEN network for some of its most valuable and committed customers might be counterproductive.
As for a Deutsche Telekom’s alleged interest in Sprint, discarding Nextel while keeping its push-to-talk customers would likely make Sprint more valuable as a takeover target. Since Sprint’s WiMAX assets are going to Clearwire, a Nextel-free Sprint would present Deutsche Telekom with only a single network technology, CDMA, to integrate into its global GSM/UMTS operations, rather than the nightmare scenario of three disparate technologies. But such a Sprint may be too slimmed down, according to Craig Moffet, vice president and senior analyst at Sanford C. Bernstein & Co. Along with Sprint’s WiMAX assets goes control over Sprint’s 4G spectrum, Sprint’s single largest asset, Moffet said.
“An acquisition by T-Mobile owner Deutsche Telekom (DTE) would be problematic on both a regulatory and technological basis,” Moffet said in a research note. “And the notion of selling or spinning off Nextel, floated for the first time last week, sounds like a good idea, but it would face the grim reality of finding a buyer–difficult, to say the least, for a business losing subscribers at a 25% annual pace–and the technology challenge of unwinding years of front office, back office and network integration.”
Even if those restructuring scenarios are unlikely, Sprint may have other motivations for moving push-to-talk to CDMA. Earlier this month, Sprint lost its rebanding appeal before a federal court, forcing it to stick to the FCC’s original June deadline retuning its iDEN network so it does not interfere with neighboring public safety frequencies. As part of the reconfiguration agreement, Sprint has to consolidate the Nextel network in a contiguous 800 MHz frequency band and public safety operators would do the same in another portion of 800 MHz. Many of the public agencies, however, are behind schedule—some only a matter a weeks while others are years behind—but Sprint has been ordered by the FCC to vacate its current spectrum even if the agencies haven’t left its new spectrum. Sprint has said that meeting the June requirement will have a huge affect operationally forcing it to reduce iDEN service.
Sprint and its new partner Clearwire also face challenges to their new WiMAX network. Today, Sprint affiliate IPCS filed a lawsuit against Sprint and Clearwire saying their proposed joint venture would violate the exclusivity agreements Sprint has with its affiliates to not offer service in their footprints. IPCS is one of the few affiliates that Sprint didn’t buy up after they filed similar lawsuits when Sprint bought Nextel. Nextel offered service in their territories, triggering provisions in their affiliate agreements stating they would be sole companies allowed to offer service under the Sprint brand in their regions. IPCS managed to keep its affiliate agreement intact, forcing Sprint to give up iDEN markets in its territory. Now IPCS is claiming the exact same thing again will happen with the Clearwire network. It has asked for a permanent injunction against the joint venture.
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