Sprint’s (S) WiMax Network A Smart Bet Even At $5 Billion


Sprint Nextel says it’s going to expand its 4G wireless network at a cost of $2.5 billion, bringing its total tab for the project to $5 billion. At a technology summit in Virginia this morning, the No. 3 wireless carrier said it would cost about $2.5 billion between 2008 and 2010 to build out a second phase of its network, which should increase its reach to 125 million people. Service tests are underway, a soft launch is scheduled for Chicago, Baltimore and D.C. later this year, and consumer sales should begin next April.

Sprint says it expects the network to generate between $2 billion and $2.5 billion in revenue in 2010 and that the WiMax network will generate positive operating income before depreciation and amortization (OIBDA) that same year. Sprint also expects it to generate positive free cash flow beginning in 2011 as OIBDA exceeds capex, working capital and other cash requirements. (Release)

Sprint’s bet, while unpopular with some cost-conscious shareholders, is wise. In Sprint’s Q2 earnings call, executives said they have sold more than a million 3G laptop cards. Every one of those subscribers would be better served with WiMax, which is significantly faster than 3G (and hopefully less flaky) and can carry a signal much farther than wi-fi. Sprint has a leg up on its rivals with WiMax — other big carriers like AT&T and Verizon Wireless are still figuring out 3G, and T-Mobile isn’t even there yet — and with the rapid rise of smartphones and ultra-portable laptops, we see a bright future for mobile broadband. (Though we’re not sold on the brand Sprint has picked for the service: “Xohm,” supposedly pronounced “zoam.” Still have time to rethink that one, guys.)

Meanwhile, Sprint got some good news yesterday: the FCC appears to be close to canning a proposal by would-be rival M2Z networks, which wanted the government to give it unused wireless spectrum to build a free, nationwide wireless broadband network.