(S) Sprint to Expand in Ethernet Market

One of the leading telecom carriers, Sprint (S) announced its plans to expand its Ethernet services to 65 markets, thereby driving growth in its networking business. The company has already made its presence felt in Ethernet business in 40 domestic and 37 international markets.

The expansion move underlines Sprint intent to widen its presence in both domestic and international markets as well as strengthen its existing foothold.

Through Ethernet services Sprints provides high-bandwidth, fiber optic media for voice and data delivery at speeds of 5, 10, 100, 500 or even 1000 Mbps (megabits per second) to customers across a common bidirectional broadband infrastructure. Sprint provides Ethernet access to businesses as a cost-effective solution for private network interconnectivity at various locations within a specific area.

Sprint’s Ethernet access solution allows connection to its Global MPLS or Dedicated Internet Access networks using an Ethernet local loop. This allows customers options to reduce network costs for high-bandwidth networks and minimizes the requirement of multiple networking technologies as Sprint’s Ethernet offers a single point of contact for end users.

The company also plans to add new services like Ethernet Private Line and Ethernet Virtual Private Line to develop its wireless and wireline networks under its Network Vision initiative.

In December 2010, Sprint announced Network Vision, a multi-year network infrastructure initiative, which could be a significant long-term margin driver. Under the plan, Sprint will consolidate multiple incompatible networks (CDMA, iDEN and LTE) comprising 68,000 cell sites into one platform supporting multiple technologies (3G and 4G) and spectrum bands (800 MHz, 1900 MHz and 2.5 GHz) with less than 45,000 cell sites.

Sprint Nextel plans to consolidate its network and gradually terminate its iDEN network from 2013 with 2017 as a tentative target for complete decommissioning. The company will replace the iDEN network on CDMA-based phones in 2011, with a new version of Nextel’s “push-to-talk” feature from Qualcomm (QCOM). Sprint continues to conduct laboratory and field-testing and expects the first upgraded cell site to go live with the new equipment in eight largest metro markets in late 2011.

The company expects the Network Vision plan to reduce its expenses through the lowering of costs associated with the Nextel network and in-network roaming.

However, the company faces stiff competition from Ethernet services of telecom giants like AT&T Inc. (T) and Verizon Communication (VZ). Competitive technologies, including VoIP (Voice over Internet Protocol) and cable telephony, along with lower pricing, have weakened Sprint Nextel’s overall position in this segment. Further, Sprint’s wireline margins could be adversely affected in 2011 by the loss of Time Warner Cable (TWC) cable VoIP contract.

We currently maintain our long-term Neutral recommendation on Sprint. For the short term (1–3 months), the stock retains a Zacks #3 (Hold) Rank

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