Sprint's Hesse Says Wireless Less Hurt by Econ; What about Big Debts?
Sprint Nextel chief executive Dan Hesse said today that the wireless industry is stable compared to the auto sector, for example, amid the global market turmoil. He said consumers see their cell phones as a necessity and won't drop their service contracts even in tough economic times.
His comments, made during a speech at the National Press Club in Washington, echo those of executives at phone giant AT&T, which this week reported continued growth in its wireless business last quarter.
Still, there are signs of weakness, particularly with business contracts as companies squeeze budgets for extra technology expenses. And he said customers will be less inclined to upgrade their phones and may opt for that $49 a month data plan instead of the $69 a month plan.
"We're cash flow free and the real issue is not being in a position where we'll have to borrow," Hesse said.
Sure, they have about $3.5 billion in cash. But they also have debt -- about $23 billion, with a $600 million note due next year.
The refrain of wireless industry resilience during tough economic times has been echoed by many executives I've talked to over the last week. They say people are about as likely to stop using their cell phones as they are to stop driving their cars. But the question for Sprint and other firms remains whether to spend billions of dollars to deploy next-generation high-speed wireless networks amid curtailed consumer demand and difficulty accessing funds in credit markets.
For Sprint that means whether or not it can stay on track to deploy its WiMax service through its proposed merger with Clearwire. The company launched its first WiMax network earlier this month in Baltimore. It plans to launch the technology next in Chicago and Washington. Its partners -- Intel, Google, Comcast, Time Warner and Bright House -- have put in $3.2 billion for the deployment of cell towers and other technology to build out the network that offers access speeds comparable to DSL lines.
"That buys them between one-third to one-half of the country in terms of market coverage, but they still need to come up with another couple billion dollars over the next few years," said Roger Enter, an analyst at Neilson IAG. "If even AT&T, a highly profitable company with huge market share can't borrow for even a day in the markets, how can Clearwire, with just like 1-2 million customer get any money?"
To help foster the deployment of WiMax technology, Hesse said the Federal Communications Commission should provide subsidies to WiMax operators.
"Around the world, WiMax is being deployed as a less-expensive choice. There has to be in rural areas (of the U.S.), a public-private partnership to make that happen," Hesse said.
As for Hesse's thoughts on the election, the one issue that he said would dramatically affect the telecommunications industry would be net neutrality. He said that a Democratic administration that pursued new open-access rules to the Internet would prevent network operators from managing their networks.
"For the telecom industry the thing that should scare it the most, if there were a Democratic administration, is the regulation of one thing -- the Internet," Hesse said.
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