Weekly Telecom Notes: Sprint, Verizon and China Telecom

The past week saw a few developments in the telecom sector. Sprint (NYSE:S) announced that it is tapping the debt market for the second time in four months for $2 billion, a part of which will be used to fund Clearwire’s LTE plans. Verizon (NYSE:VZ) said that only about 5% of its total subscriber base use LTE-capable phones, and that a significant amount of its expenses this year will go into promoting its 4G network. China Telecom (NYSE:CHA) will be launching the iPhone 4S a week from now, making it the second carrier to do so on Chinese soil.

Sprint

Sprint is accessing the bond market for the second time in less than four months as the third-largest U.S. wireless carrier looks to finance expensive network upgrades and subsidizes Apple’s iPhone for its customers. The company further said that it may also use a part of the proceeds from the $2 billion notes offering to fund partner Clearwire’s LTE plans, sending shares in the cash-strapped wireless firm up more than 4 percent Tuesday.

With Verizon and AT&T having already taken a sizable lead ahead of Sprint in the LTE race, Sprint is trying to aggressively build its LTE network to make up for lost time. It was also looking to augment its network with that of a couple of third-party resellers to build a network robust enough to compete with Verizon and AT&T. However, one of Sprint’s potential partners, Lightsquared, failed to secure regulatory approval for deploying its LTE network, leaving Sprint with only one LTE partner in Clearwire. (see Sprint’s Lucky to Have Clearwire While Lightsquared’s LTE Plans Flounder)

This makes it imperative for Sprint to help Clearwire with the cash required for its LTE plans. But adding another $2 billion debt to its already over-leveraged balance sheet – Sprint has about $12 billion debt on its books, which compares poorly to a total market cap of around $7.6 billion – means reduced flexibility for the company as it now has to be very careful with what it does with the cash. (see Clearwire Cheers Sprint’s Plans to Tap Debt Market Again)

See our complete analysis of Sprint here

Verizon

Verizon may have been the first to launch its 4G LTE network more than a year ago, but customers have yet to take to the new high-speed technology. Speaking at an investor conference Monday, Verizon Wireless’ CFO Fran Shammo said that only about 5% of its total customer base use an LTE smartphone right now. Verizon is currently well ahead of AT&T and Sprint in terms of LTE deployment with coverage in 196 markets across the U.S. It has also been actively promoting its LTE technology through the launch of cheaper smartphones and plans. But bulky and power-hogging smartphones as well as frequent outages on Verizon’s LTE network have ensured that LTE adoption remained sluggish at best.

All that may change soon, however. With the launch of Qualcomm’s latest integrated baseband chipsets last week, the answer to the first two problems has finally arrived. Not only are the baseband chipsets integrated on the core Snapdragon processor but are also built on a 28nm manufacturing process that conserves space and power, thereby removing two of the most significant bottlenecks that could have come in the way of mass 4G adoption. (see Qualcomm Gives The Wireless Industry A Reason To Celebrate)

As for the recent outages, we see them as initial hiccups inherent in any early stage adoption of a nascent technology. Thankfully, the outages haven’t come at a time when Verizon’s LTE network is being used widely, giving Verizon enough time to identify and sort out the issues. We are hopeful that an increased focus on 4G on Verizon’s part, as Apple looks to launch an LTE-capable iPhone 5 this year, will help weed out the bugs sooner than later. (see Verizon to Make the Big LTE Push This Year)

See our complete analysis of Verizon here

China Telecom

China Telecom announced last week that it added close to 2.8 million subscribers in January, about 87% of which subscribed to 3G. The company now has close to 130 million subscribers and is a distant third behind China Mobile and China Unicom. But the gap is narrow when it comes to 3G. As of January, China Mobile had around 54 million 3G subscribers compared to China Unicom’s 43 million and China Telecom’s 39 million.

China Telecom will hope that the iPhone 4S launch on its network next week will close the gap with its nearest 3G rival, China Unicom, which launched the 4S last month. (see China Telecom Looks for iPhone Leverage in 3G Race)

See our complete analysis of China Telecom here