Sprint (NYSE: S) finally showed some love for its wireline business this week by launching a separate wireline division dedicated to its business customer base, but questions remain about product direction and if they are considering a possible sale of the unit.
Headed up by Mike Fitz, a 10-year company veteran, the new wireline division will include a dedicated set of sales representatives and solutions engineers who sell, design, implement and support wireline solutions for business customers. The new unit will also work with Sprint wireless sales representatives to provide what it says is "a fully integrated approach to communications needs for business customers."
Sprint's wireline division has a number of things going for it in terms of product offerings, including SIP trunking and unified communications services, a global MPLS network, Ethernet, and managed services. What's more, Sprint's Compass portal will provide wireline reporting improvements for its larger customers.
But while Sprint's wireline unit is profitable, reporting $2.4 billion in 2015, quarterly revenues continue to decline.
Evidence of this trend was seen in the first quarter where Sprint reported that wireline revenues were $562 million, down sequentially from $581 million in the fourth quarter of 2015. Within the wireline revenue mix, its three main sources -- voice, Internet and data -- all declined again to $194, $37 and $316 million, respectively.
Brian Washburn, service director for global business network and IT Services for Current Analysis, said in a research report that even with the revenue declines Sprint has built a sizeable wireline network business.
"Despite many years of declining revenues, Sprint remains a major global facilities-based wireline network operator, and the wireline business has a portfolio that includes some advanced, well-differentiated services and features," Washburn said. "The operator also reportedly does well with wireline business customer satisfaction and retention rates."
Being a relative late bloomer in the U.S. Ethernet services market, it's unlikely that Sprint will pose a competitive threat to established players like AT&T (NYSE: T) and Verizon (NYSE: VZ) or cable operators like Comcast (NASDAQ: CMCSA) and Charter Communications (NASDAQ: CHTR), which are rapidly expanding their business service capabilities.
If Sprint is really serious about revamping its wireline position, the service provider will have to overcome some hurdles. It will need to articulate a wireline network investment strategy along with U.S. expansion and international efforts it will undertake.
Part of that strategy will involve outlining the network access strategy. Sprint spun out its local telephone business as Embarq, now CenturyLink, in 2005 so it does not have a last mile network -- meaning they have to rent a mix of TDM-based special access, Ethernet circuits and fiber access from other service providers.
That's not to say it hasn't paid attention to wireline access. In 2013, Sprint began upgrading its optical network backbone with Ciena's 6500 platform to support its wireline and wireless networks.
Sprint has established an MPLS service presence in 157 countries and has Ethernet access in over 80 countries as well as in 147 cities in the United States. The service provider has also continued to establish E-NNI agreements with a host of European service providers such as Interxion. This arrangement has given Sprint presence in Interxion's Dusseldorf, Frankfurt, Brussels, Madrid and Vienna data centers. Having that domestic and international presence makes it valuable to multinational businesses that want to work with a common partner that needs access into these key locations.
But perhaps the biggest question about Sprint's strategy is whether the separation of the division is another sign that they're thinking of preparing the put the unit on the selling block.
Wasbhurn said that Sprint's move may drive industry watchers to think that it is again looking for suitors to purchase the business.
"Giving the operator's wireline business separate attention does not inspire confidence that business will be reinvigorated, or that it will even stabilize long-declining wireline revenues," Washburn said. "Instead, observers will expect Sprint finally conducted the structural separation of its wireline business to ready the unit for sale and use the proceeds to address its debt load."
This is not the first time that rumors about the fate of Sprint's wireline have emerged. Marcelo Claure, CEO of Sprint, told investors during its second quarter earnings call in 2014 that the company was open to selling the wireline assets so it could focus exclusively on its wireless business. However, he clarified his position during fourth quarter 2014 earnings call by saying that the wireline business will enable it to make its wireless business more competitive.
If Sprint is going to really put up the wireline for sale who would be interested in buying it?
One obvious candidate is Level 3 Communications. Now that it has an enhanced U.S. footprint by purchasing tw telecom, Level 3 has expressed interest in pursuing deals that could enhance its international footprint, particularly in Europe. Earlier in the first quarter, Level 3 expanded its metro Ethernet service into 27 new European markets and has expressed interest in purchasing other assets to further growth in Europe. Sprint's global MPLS network and external network to network interconnnection (E-NNI) agreements could provide complementary access to the service provider's growing European fiber network.
While no one can accurately predict what Sprint's next wireline move will be, the service provider has a near-term opportunity to set the tone for its wireless business by setting a clear strategy for the division and how they provide an alternative service to traditional incumbent players.--Sean