Sprint - Nextel 2013 Annual Report Download - page 31

Table of Contents
equity immediately prior to the closing of the SoftBank Merger, and
$1.9 billion cash consideration at closing of the SoftBank Merger.
In connection with the close of the SoftBank Merger, Sprint Corporation became the successor registrant to Sprint Nextel under Rule 12g
- 3 of the
Securities Exchange Act of 1934 (Exchange Act) and is the entity subject to the reporting requirements of the Exchange Act for filings with the Securities and
Exchange Commission (SEC) subsequent to the close of the SoftBank Merger.
Network Modernization
We are in the process of modernizing our network to allow the consolidation and optimization of our 800 megahertz (MHz), 1.9 GHz and 2.5 GHz
spectrum into our base stations. Prior to the closing of the Clearwire Acquisition, this initiative to modernize our network (Network Vision) encompassed all of
our approximately 38,000 CDMA cell sites. The Network Vision project, which commenced in late 2011, includes the deployment of enhanced 3G and 4G LTE
technology using our 1.9 GHz spectrum and the deployment of voice technology on our 800 MHz spectrum on the majority of those 38,000 sites. We expect to
be substantially complete with Network Vision by the middle of 2014. In addition to Network Vision, we recently commenced deployment of 4G LTE technology
on our 800 MHz spectrum and we will continue to expand 4G LTE on our 2.5 GHz spectrum, which we expect will further enhance the quality of our network. We
are also modifying our existing backhaul architecture to enable increased capacity to our network at a lower cost by utilizing Ethernet as opposed to our existing
time division multiplexing (TDM) technology. We expect to incur termination costs associated with our TDM contractual commitments with third
- party vendors
ranging between approximately $175 million to $225 million, the majority of which we expect to record through the first quarter of 2016.
Some of our subscribers are experiencing network service disruptions during the construction phase of Network Vision, which has contributed to the
elevated postpaid churn rates in the third and fourth quarters of 2013 (refer to the churn results table within "Results of Operations"). Based on our experience
in several large markets that have reached near completion of Network Vision construction, we have observed that churn elevates during the construction phase
and then gradually improves to pre
- construction levels over a period of several months following the achievement of substantial completion in the market. Our
expectation is that our voice and 3G modernization effort, which we believe is a major driver of the recently elevated churn rates, will be substantially complete
by mid
- 2014. Based on the observed performance trends for the several larger markets that are now complete, we expect churn results will continue to be
negatively impacted by our Network Vision project, with gradual improvement beginning in the latter part of 2014.
As of the date of the Clearwire Acquisition, Clearwire had deployed WiMAX technology on approximately 17,000 cell towers and was in the process
of deploying 4G LTE technology using the 2.5GHz spectrum on approximately 5,000 of these sites, which has now been completed. We plan to expand the 2.5
GHz 4G LTE deployment to approximately 5,000 more legacy Clearwire sites. In addition, we plan to cease using WiMAX technology by the end of 2015. We
have also evaluated our consolidated cell tower portfolio, including the 17,000 cell towers obtained in the Clearwire Acquisition, and identified approximately
6,000 redundant sites that we expect to decommission and terminate the underlying leases. We expect lease exit costs recorded in future periods associated with
these sites to range between approximately $50 million to $100 million on a net present value basis. The timing of lease exit charges will be dependent upon the
date we cease utilizing these sites without future economic benefit.
We expect the majority of the efforts to roll out 4G LTE on our 800 MHz and 2.5 GHz spectrum bands to be completed by the end of 2015. In October
2013, we announced Sprint Spark
SM
, which is an enhanced LTE network capability that analyzes our three spectrum bands of LTE and connects a device to the
most optimal band available in the area. We expect the deployment period for this technology to correspond with the roll out of 4G LTE on our 800 MHz and 2.5
GHz spectrum bands. The cost to complete these initiatives to modernize our network will be significant. We expect capital expenditures of approximately $8
billion in 2014.
Ultimately, we expect these initiatives to bring financial benefit to the Company through migration to one common network, which is expected to
reduce network maintenance and operating costs through capital efficiencies, reduced energy costs, lower roaming expenses, backhaul savings, and reduction
in total cell sites as well as improvements to the quality of service to subscribers. Our expectation of financial savings is affected by multiple variables, including
our expectation of the timeliness of modernization across our existing network footprint, which
29