Sprint to Increase Wireless Capex Budget in 2005
A “leaner, more robust and more agile” Sprint will see continued single-digit revenue growth in 2005 -- with double-digit growth in wireless making up for double-digit losses in its long-distance unit and downward pressure on its local service -- Sprint’s top officials said Thurs. during the company’s annual investor conference in N.Y.
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Sprint said capital expenditures (capex) will run $4- $4.2 billion compared to $4 billion in 2004, based largely on the carrier’s decision to spend more on wireless infrastructure. The company also said it added 200 direct retail stores in 2004, for 800 total. The company opened 50 kiosks working with RadioShack last year, with several hundred more planned for 2005.
The Sprint investor conference comes at a critical time for the company as it seeks to complete its $34.2 billion merger with Nextel within the year. The company declined to provide some data, particularly cash flow, with the merger in progress. CFO Bob Dellinger said that as a result of efficiency measures in 2004, including a 22% workforce reduction over 2 years, the company saw a 16% increase in revenue per employee in 2004, with a 10% increase expected this year.
Sprint forecast consolidated adjusted EBITDA of $8.5- $8.7 billion in 2005 and provided guidance for each of its major business units. As expected, wireless is to be the star with adjusted EBITDA of $4.8-$5 billion, up from $4.2 billion in 2004. Capex is to run $2.9 billion, up from $2.6 billion last year. Local service is projected to see revenue declines in low single digits, with adjusted EBITDA of $2.8 billion, similar to 2004; capex is projected at $900 million, down from $1 billion in 2004. Long distance is projected for adjusted EBITDA of $800- $950 million, down from $1.1 billion in 2004 and capex will be $300 million, about the same as in 2004.
“We will see similar cost and inflation pressures [as in 2004] but these 2 negatives will again be more than offset by strong volume and productivity,” Dellinger said. “Volume will be an important contributor in 2005. It will be driven by wireless subscribers… and wireless data as well as increased DSL. Productivity should be strong in ‘05 as we see the full year benefits of the cost reduction initiatives that we undertook in 2004, as well as a variety of new projects as we speak.”
CEO Gary Forsee said major initiatives in 2005 will include rollout of the EVDO network to cover more than 130 million POPs by the end of the year. Sprint Pres. Len Lauer said the carrier will concentrate on improving wireless customer satisfaction in 2005, improving signal density, reducing drops and blocks, implementing IP-based technology and rolling out EVDO. Lauer also stressed the importance of simplifying Sprint’s offering to its customers so they can better control the number of minutes they pay for each month through its “fair and flexible” program.
A top focus will be building on wireless data offerings. “When you think about the wireless side it’s no longer just a phone,” Lauer said. “It’s really a digital camera, it’s a camcorder, it’s a music player, it’s a video device… The convergence of consumer electronics and mobile phones is changing the way we all look at devices.”
Sprint last week reported a loss of $1.01 billion for 2004 after taking a $3.5 billion charge to write down the value of its long-distance assets. For the year, Sprint’s operating loss was $303 million, with revenue up 5% to $27.43 billion. Analysts polled by Thomson First Call predict Sprint’s 2005 earnings will come in at $1.38 per share on revenue totaling $28.26 billion.