Update: Sprint seeks to grow wireless and focus more on data

Sprint Corp., steering clear of the kind of restructuring plans its competitors have recently announced, said on Friday that it will look to grow its wireless business while shifting its fixed-line unit’s focus to data and Internet services.

“Our goal is straightforward: deliver superior shareholder returns,” said William T. Esrey, Sprint’s chairman and CEO, during a teleconference from Sprint’s annual investment meeting in New York. “To achieve this, we must continue to build PCS into a wireless powerhouse and transition FON Group into a high-growth, data driven business.” PCS is Sprint’s wireless division, and FON its fixed-line division.

Sprint, like AT&T Corp. and WorldCom Inc., is suffering from lagging long-distance revenue and increased competition. Although AT&T and WorldCom have chosen recently to split their business units, Sprint has decided to keep its corporate structure intact by trying to grow revenue for its two units with an influx of capital for infrastructure improvements and a new focus.

“I think it was fully expected,” said Jeff Moore, a senior telecom analyst for Current Analysis in Sterling, Virginia. “They (data and Internet services) are growth markets as opposed to long distance, which is pretty much what the market is expecting. I think that Sprint has a stronger hand to play compared to AT&T and Worldcom because they have a stronger balance of assets.

“Sprint seems to be a bit more balanced in their attack, while they certainly will be focusing on data and Internet services, I don’t think Sprint is going to neglect the consumer,” Moore said.

FON Group’s revenue mix will shift from voice to data and Internet services, Esrey said. Currently, 70 percent of its long-distance revenue comes from voice, and 30 percent from data and Internet services, while in the local operations 90 percent of revenue comes from voice and just 10 percent from data and Internet services. But by 2003, some 50 percent of FON Group’s revenue will come from data and broadband services, he said.

The fixed-line group’s Internet and related services account for about US$1 billion in annual revenue today, and the company anticipates this will increase to $5 billion by 2003, the company said in a statement. This will be driven by expanded transport capabilities, Web hosting, value-added services like managed network services and applications, as well as global IP (Internet protocol) services.

Sprint’s International expansion will focus on development of centers in Europe and Asia to better address the Internet business market and multinational companies.

In the United States, Sprint plans to deploy local fiber rings in 20 major markets. The company will utilize fibre-leasing arrangements to reduce the company’s access costs, according to the company statement. In total, the FON unit’s capital investment is expected to increase to $6.2 billion in 2001 compared to $5 billion in the 2000, the company said. Nearly $1 billion of the new initiatives will focus on expanding wireless broadband MMDS (multi-channel, multi-point distribution service) and DSL (Digital Subscriber line) capabilities and develop broadband product applications.

In 2000, earnings-per-share is expected by the company to be between $1.80 and $1.90 a share for the FON Group, after strategic investments. The top end of the forecast would hit the earnings mark of $1.90 that First Call/Thomson Financial forecasts.

The FON Group is expected to have earnings per share of between $1.65 and $1.75 for 2001. This falls below the $2.10 a share earnings estimates in 2001 from analysts polled by First Call/Thomson Financial. The company forecasts that by 2003 earnings per share could hit $2.68 a share.

During 2001, core earnings per share are expected by the company to grow at a low mid-single digit rate. The company cautioned that revenue and earnings estimates could be reduced if pricing pressures in long distance accelerate.

Sprint forecast that within five years about 60 per cent of the PCS unit’s consumer base, and nearly all of its business customers, will be using wireless Web services. The resulting Internet services revenue is expected to offset any expected erosion of voice revenue caused by pricing pressures.

Investment to upgrade the Sprint’s digital PCS network to third generation (3G) technology will provide doubled voice capacity and increase data transmission speeds, the company said. The migration to 3G will represent “better economics” for the Westwood, Kansas-based company through improved spectrum efficiency and upgrades to its network, the company said.

Earnings guidance for the PCS unit was not provided, but revenue forecast suggests growth of 50 per cent in 2001 and 30 per cent to 35 per cent in 2002. First Call/Thomson Financial expects a loss of $1.93 a share for PCS in 2000 and a loss of $1.03 per share for the wireless unit in 2001, according to the analysts it polled.

The U.S. markets gave a mixed reaction to news early Friday. Shares of FON traded up 12 cents or .56 percent to $22.62 a share in early morning trading. PCS shares fell $3.43 or 9.4 per cent to $33.12 a share.

Sprint, in Westwood, Kan., can be reached at http://www.sprint.com/

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