Sprint - Nextel 2014 Annual Report Download - page 29

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amended, the Bond Agreement). As a result of the SoftBank Merger, Starburst II became the parent company of Sprint
Nextel. Immediately thereafter, Starburst II changed its name to Sprint Corporation and Sprint Nextel changed its name to
Sprint Communications, Inc. Pursuant to the Bond Agreement, Sprint Communications, Inc. issued a Bond to Starburst II
with a principal amount of $3.1 billion, which was converted into 590,476,190 shares of Sprint Communications, Inc.
common stock at $5.25 per share immediately prior to the close of the SoftBank Merger.
As a result of the completion of the SoftBank Merger in which SoftBank acquired an approximate 78% interest in
Sprint Corporation, and subsequent open market stock purchases, SoftBank owned approximately 79% of the outstanding
voting common stock of Sprint Corporation as of March 31, 2015. The SoftBank Merger consideration totaled approximately
$22.2 billion, consisting primarily of cash consideration of $14.1 billion, net of cash acquired of $2.5 billion, and the
estimated fair value of the 22% interest in Sprint Corporation issued to the then existing stockholders of Sprint
Communications, Inc. The allocation of consideration paid to assets acquired and liabilities assumed was based on
management's judgment of estimated fair values after evaluating several factors, including a valuation assessment. The close
of the transaction provided additional equity funding of $5.0 billion, consisting of $3.1 billion received by Sprint
Communications, Inc. in October 2012 related to the Bond, which automatically converted to 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. In addition, in order to align with SoftBank’s reporting schedule, we changed our fiscal year end from
December 31 to March 31, effective March 31, 2014. References herein to fiscal year refer to the twelve-month periods ending
March 31 unless otherwise specifically noted.
Network
We are continuously improving our network, including optimizing the use of our 1.9 GHz, 800 megahertz (MHz)
and 2.5 GHz spectrum. Our current improvement efforts include the deployment and optimization of 4G LTE on our 800
MHz and 2.5 GHz spectrum. We expect these efforts to further enhance the quality of our network.
Some of our subscribers experienced network service disruptions, particularly voice service, during our recent
network modernization program, which was substantially complete in calendar year 2014. We believe this program, among
other factors, contributed to the elevated postpaid churn rates we experienced in recent quarters (see the churn results table
within "Results of Operations"). We are now seeing improvements in voluntary churn as the network modernization program
benefits have been realized through improved network quality and the service disruptions associated with this program have
decreased significantly.
As part of our recently completed modernization program, we modified our existing backhaul architecture to
enable increased capacity to our network at a lower cost by utilizing Ethernet as opposed to time division multiplexing
(TDM) technology. Termination costs associated with our TDM contractual commitments with third-party vendors, ranging
between approximately $25 million to $50 million, are expected to be incurred by September 30, 2016.
As expected, our network modernization program has allowed us to realize financial benefit to the Company
through reduced network maintenance and operating costs, capital efficiencies, reduced energy costs, lower roaming
expenses and backhaul savings. Most importantly, our customers are benefiting from significant improvements to the quality
of service they receive. Along with our recently completed network modernization plan, our ongoing network improvement
efforts are expected to provide consistent reliability, capacity and speed that customers demand. Over the longer-term, we
expect to densify our network and move to an all-LTE platform.
WiMAX technology was deployed by Clearwire at the time of the Clearwire Acquisition. We plan to cease using
WiMAX technology by the end of calendar year 2015.
Device Financing Programs
During 2013, wireless carriers introduced new plans that allow subscribers to forgo traditional service contracts
and handset subsidies in exchange for lower monthly service fees, early upgrade options, or both. In 2013, AT&T, Verizon
Wireless and T-Mobile each launched programs that included an option to purchase a handset using an installment billing
program. Sprint offers its own device (handset and tablet) installment billing program called Sprint Easy Pay.
Under the Sprint Easy Pay installment billing program, we recognize a majority of the revenue associated with
future expected installment payments at the time of sale of the device. As compared to our traditional subsidized program,