Why Sprint might sell its Wireline segment

Why Sprint’s stock plunged after the earnings announcement (Part 4 of 16)

(Continued from Part 3)

Sprint's Wireline segment continues to decline 

Earlier in the series, we discussed Sprint's (S) wireless division. However, Sprint generates ~8% of its total revenues from its Wireline segment. The segment is declining at a faster rate than the Wireless segment in terms of revenues and margins. Sprint's Wireline segment's revenues declined by 19% year-over-year (or YoY). Its adjusted earnings before interest, tax, depreciation, and amortization (or EBITDA) declined at an even faster rate. It declined from $117 million in fiscal 3Q13 to $27 million in fiscal 3Q14.

Compared to its peers, the Wireline segment's revenue decline for Sprint is bigger than Verizon (VZ) and AT&T's (T) declines. As the chart below shows, the revenue decline rate for Verizon and AT&T is less than 1% each. Sprint attributed its decline to decreasing voice revenues and the decline in cable voice-over IP migrations.

Market Realist highlighted Verizon and AT&T's wireline businesses in " Must know: Why AT&T's wireline business continues to decline " and " Must-know: Why Verizon saw a turnaround in its wireline segment ."

Sprint might sell its wireline business

During the earnings conference call, Sprint's management was asked whether or not the company might sell its wireline division. Management replied that they're reviewing the move. They will provide a concrete answer in a few months.

Sprint should sell a declining business like wireline. It would also help it focus on its wireless business. It would become a much more potent competitor for Verizon and AT&T.

A few days ago, Investor's Business Daily reported that an Oppenheimer analyst speculated that Sprint could sell its wireline business to Level 3 (LVLT) for $4 billion. LVLT also provides communications services to wholesale and enterprises customers—similar to Sprint.

However, other analysts believe that CenturyLink (or CTL) or Windstream (WIN) would be a better fit for Sprint's wireline business.

Continue to Part 5

Browse this series on Market Realist:

• Part 1 – Must-know: Sprint's stock decreased after the earnings
• Part 2 – Why Apple's iPhone 6 could instill life into Sprint
• Part 3 – Why Sprint is targeting prime customers to improve its churn rate

• Verizon