Sprint Nextel’s (S) stock received a hit of bad news this morning as an analyst warned of a potential bankruptcy in the carrier’s future. The analyst, Craig Moffett from Sanford Bernstein, expressed concern over Sprint Nextel’s ongoing need to spend billions of dollars to secure attractive devices, upgrade its network and potentially support the network upgrade plans of its subsidiary Clearwire.
Moffett noted the bankruptcy potential in a report downgrading his rating on the carrier’s stock from “market perform” to “underperform.” The news sent Sprint Nextel’s stock down initially more than 4%, before rallying later this morning to being down less than 1%.
The news comes days after reports surfaced that Sprint Nextel CEO Dan Hesse was under increasingly close supervision by the carrier’s board of directors, which also reportedly scuttled a deal for the carrier to purchase regional player MetroPCS.
Bankruptcy rumors have circled Sprint Nextel for years as the carrier has struggled in the wake of its $35 billion acquisition of Nextel Communications in 2005, to find a place for itself as the nation’s No. 3 operator. Compounding that challenge has been the sharp growth of its larger rivals Verizon Wireless and AT&T Mobility, which many have noted has come at the expense of smaller carriers.
For Sprint Nextel, financial issues have more recently centered on its Network Vision plans that call for the carrier to spend billions of dollars upgrading its network to allow for a more cost-efficient operational plan. Those cost efficiencies are expected to come from modern network equipment that will allow for the de-commissioning of around 20,000 cell sites; the turn down of its iDEN network; and the installation of LTE equipment to compete in the mobile broadband space.
Sprint Nextel is also expected to be on the hook to an extent for Clearwire’s rollout of TD-LTE technology that Sprint Nextel is relying on to provide further depth to its LTE services. Clearwire has managed to raise more than $1 billion to help fund those efforts, with much of that coming from Sprint Nextel. Clearwire is also attempting to position its network efforts as a wholesale option for carriers looking to move into the LTE space, but has so far not managed to attract carriers willing to help fund the initiative.
Sprint Nextel has also reportedly been forced to shell out more than $15 billion in guarantees to Apple for the purchase of its iPhone device. Sprint Nextel just began carrying the device last fall with the launch of the 4S model, which has helped the carrier stave off postpaid customer defections at the expense of increased device subsidies that have hit its bottom line.
Moffett reportedly noted in his report that rumors of an LTE-equipped iPhone set to be unveiled later this year that would not be compatible with Sprint Nextel’s network has heightened concern over that deal.
Currently the iPhone 4S offered by Sprint Nextel is similar to the one offered by Verizon Wireless in that they both run on CDMA-based 2G and 3G technologies. However, with Verizon Wireless moving quickly to the LTE standards using its 700 MHz spectrum assets, Sprint Nextel’s plans to begin rolling out LTE services later this year using its 1.9 GHz spectrum holdings will require tuning changes to the device’s antennas that could preclude Apple from making the initial investment in producing a device for Sprint Nextel. This model has already been shown to an extent with the recent launch of Apple’s latest iPad device, which includes an LTE version compatible with Verizon Wireless and AT&T Mobility’s 700 MHz-based networks. While both carriers are using different bands in that spectrum range, the amount of tuning is not seen as significant.
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