Fitch downgrades Sprint Nextel after Q4 loss

With Sprint Nextel Corp. reporting a massive fourth-quarter loss, the company’s ratings have taken a fall and it has been given a negative outlook for this year, according to a ratings service.
Fitch Ratings has downgraded ratings for Sprint Nextel Corp., Sprint Capital Corp. and Nextel Communications Inc. to “BB” from “BB+.” The downgrade impacts each of the company’s standing for issuer default and senior unsecured ratings.
“Sprint Nextel’s downgrade is reflective of the significant continued revenue declines primarily due to high subscriber losses as well as the limited visibility over the timing and the extent of how overall operating trends might improve during 2009,” according to a Fitch report issued Thursday.
For the final quarter of 2008, the nation’s third-largest carrier churned more than 1 million customers – 1.1 million postpaid users and 314,000 prepaid users. The results have pushed Sprint Nextel to a new low point, counting fewer than 50 million customers. (The carrier now counts 49.3 million subscribers.) The wireless provider also posted a $1.62 billion loss.
According to Fitch, Sprint Nextel must not only battle Verizon Wireless and AT&T Mobility for market share but is also dealing with an image crisis. Verizon and AT&T each posted profits for the fourth quarter.
“While Spring Nextel believes past customer experience issues with customer care, network quality and retail distribution have been largely resolved and are on par with its peers, the company’s competitive position remains weak due to lagging perception issues, brand challenges and past advertising spending levels,” according to the report. “The positive momentum experienced by its financially stronger competitors and the general economic downturn creates a significant headwind for Sprint Nextel to increase its share of gross additions in order to stabilize its subscriber base.”
The ratings company said a prolonged economic recession could have a more pronounced effect on the wireless provider’s subscriber base.
Fitch said one positive for Sprint Nextel is it ended the year with $3.7 billion available in cash and management is committed to keep significant cash balances because the company has debt that will mature in the next few years. In May, $600 million is due and $600 million is also due in January 2010. Debt also includes $750 million due in June 2010, $1 billion credit facility debt due in December 2010 and $1.7 billion due in January 2011.
Sprint Nextel has been given a negative outlook because Fitch is concerned that the wireless provider’s current initiatives to turnaround the company will stabilize operating trends this year.
“Failure to show improvement in operational metrics during the first half of 2009 will likely result in further ratings review to assess the potential ratings impact,” according to the report.
Fitch is also concerned about the company’s continued commitment to its iDEN business. Fitch said the erosion of iDEN has caused significant degradation to cash flow generation and questions the long-term viability of the business unit. Fitch also questions whether there will be enough Boost Mobile unlimited subscribers to offset postpaid iDEN losses.