Shares of the No. 3 U.S. mobile service rose 6.4 percent as investors bet Sprint would finally unravel the mistakes of its $35 billion Nextel purchase that brought years of headaches including massive customer losses.
Sprint, which offers services on three different networks, said on Monday it would spend $5 billion on network equipment from Alcatel-Lucent
Up to 40 percent of the savings would come from phasing out the iDen network starting in 2013, according to Sprint. It also sees energy and rent savings from installing more energy efficient and less bulky equipment that could pave the way toward easier technology upgrades.
That's big savings, said Pacific Crest analyst Steve Clement, even as he noted that it would be a long time before investors would see the financial benefits.
Since the project involves big upfront payments in the first few years, the company said it does not expect to see improvements to its profit margins until 2013.
Along with savings, the restructuring would also bring Sprint the capability to consolidate several different technologies into a smaller amount of network equipment. And it would allow it to repurpose some spectrum being used by the iDen network to boost the capacity of the original Sprint CDMA network.
Fundamentally the network performance improves dramatically, Bob Azzi, a senior vice president for Sprint, told Reuters. Customers will notice the difference.
For its high speed wireless data services, Sprint depends on the WiMax network being built by Clearwire Corp
Sprint said the restructuring would mean it could possibly add WiMax technology to the network, putting it in a position to forge a network sharing agreement with Clearwire, which needs billions of dollars more funding to complete the construction of its own network.
But Steve Elfman, president of network operations, said no such agreement has been reached with Clearwire, which is in negotiations with Sprint and other companies with a view to raising more money.
Aside from Clearwire, Sprint offers services on two other networks. Its iDen network carries walkie-talkie services as well as traditional phone calls, but this network has been losing customers as it uses an older technology that is too slow to support data services such as mobile Web. About 11 million Sprint customers use the iDen network.
While Sprint's CDMA network, which supports about 34 million customers, is faster than the iDen network and supports data services it is not at the cutting edge of technology.
Sprint said part of the new project would include adding walkie-talkie services on the CDMA network so that it will be able to start phasing out the iDen network in 2013. The walkie-talkie network is often used by blue-collar workers in industries such as construction or transportation.
Azzi said new network equipment would take up as much as 75 percent less space at its cellular broadcast towers, allowing Sprint to save money on electricity.
The new gear would also allow Sprint more flexibility in its choice of wireless technology as well as the landline network technology used to connect to its wireless towers.
Because of this, Sprint could potentially use one network box to offer services based on WiMax and LTE, Azzi said.
Sprint has been slowly turning around its cellphone business after losing customers for years due to poor integration of the Nextel merger, and has started adding customers in some segments in recent quarters.
On CNBC earlier on Monday, Greenlight Capital CEO David Einhorn said Sprint Nextel was a good long-term bet.
The deal is good news for the network equipment makers involved. Ericsson, which already manages Sprint's network, said it would be charged with putting the new technology from it and its two rivals together into the network.
According to media reports, companies that competed for the network project also included Huawei
Sprint shares closed up 25 cents, or 6.4 percent, at $4.17 on New York Stock Exchange.
(Reporting by Sinead Carew; Editing by Derek Caney, Dave Zimmerman and Richard Chang)