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What Sprint's decision to sit out the next wireless auction really means

Sprint executives say the company has enough wireless spectrum without taking part in next year's much anticipated auction. How wise a move is that?

Is Sprint missing the opportunity of a lifetime or making a smart bet during a difficult time?

Sprint

That's the big question as the market digests news from the weekend that Sprint, the fourth-largest carrier in the US, will skip the Federal Communication Commission's 2016 auction of TV broadcast spectrum.

Sprint's decision could have a significant effect on how the wireless industry looks in the coming years. This auction is critical because it's expected to be one of the last times the government will sell low-frequency radio licenses, or the airwaves that help carriers provide lower-cost service to suburban and rural markets while improving in-building coverage.

AT&T and Verizon, the largest wireless companies in the country, already control more than 70 percent of this type of wireless spectrum. The FCC's auction is expected to give smaller carriers, like Sprint and T-Mobile, access to larger quantities of this valuable asset.

Overland Park, Kansas-based Sprint has been plagued by a series of poor business decisions dating back to its ill-fated 2005 acquisition of Nextel, which haunted the company for years. Many industry watchers question whether Sprint's latest move may be more of the same. While its network has improved, the company must continually convince consumers that its coverage is up to snuff.

That's why Sprint CEO Marcelo Claure said he believes it's important for Sprint to focus on its network and the assets it already owns instead of spending billions of dollars to acquire new spectrum that it probably wouldn't be able to use for another four years.

"Sprint's focus and overarching imperative must be on improving its network and market position in the immediate term so we can remain a powerful force in fostering competition, consumer benefits and innovation in the wireless broadband world," Claure said in a statement. "Sprint has the spectrum it needs to deploy its network architecture of the future."

T-Mobile CEO John Legere, however, said Sprint is making a huge mistake by missing the opportunity to buy low-band spectrum, especially since the FCC has agreed to set aside a portion for smaller carriers. Legere is hopeful that without Sprint, there will be more spectrum for T-Mobile to buy. Competition between the two companies is fierce. T-Mobile passed Sprint last month to become the third-largest US carrier.

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Screenshot CNET/Marguerite Reardon

Wireless spectrum is the wireless industry's lifeblood, the airwaves used to handle voice calls, text messages and Facebook uploads for mobile devices. Sprint already owns more spectrum than any other nationwide carrier. The trouble is that most of this spectrum, which it obtained in 2013 from its acquisition of wireless provider Clearwire, is at higher frequencies. This means Sprint must install more cell towers to cover the same geography than it would if it used low-frequency spectrum.

The good news for Sprint is that it also owns other spectrum assets. Through its acquisition of Nextel, Sprint owns some low-frequency spectrum. After nearly a decade of working to resolve its interference issues, the company is deploying this spectrum for its 4G LTE wireless service.

Meanwhile, Sprint is also using new technologies to maximize the performance on its higher-frequency spectrum, significantly increasing the speed and capacity of links that use these airwaves. As a result, the reliability of its phone calls and text messages has improved, according to testing firm RootMetrics.

Another factor for Sprint may be its financial state. The company burned through $2.2 billion in cash in the second quarter. Even though Sprint made no mention of financial difficulties in its statement over the weekend, it likely could not have participated in the auction without a cash infusion from its parent company, Japanese carrier Softbank.

Whether Sprint can remain competitive in the long run is unclear. Roger Entner, an analyst with Recon Analytics, said that in spite of Sprint's past problems, it can still run a good race.

"When you're sitting on two times more spectrum than anyone else," he said, "why not spend your money on improving your network rather than getting more of what you already own?"