With new rumors that Sprint Nextel Corp. (S) was in line to inherit Apple Inc.’s (AAPL) iconic iPhone device in the coming months, analysts cited a cautious tone on the impact such a move might have.
Most would agree that Sprint Nextel has missed out on potential growth in the market as it has lacked access to any of the iPhone models, while its larger rivals AT&T Mobility, and more recently Verizon Wireless, have basked in the allure of the device.
Wells Fargo Securities L.L.C. Senior Analyst Jennifer Fritzsche noted in a report that while adding the iPhone to its lineup would help Sprint Nextel turn around a recent slide in gross customer additions, there will also be some financial impact to the move that could hinder the carrier’s ability to meet previous guidance.
“In our view, the two risks to the iPhone for Sprint is: 1) [earnings before interest, taxes, depreciation and amortization] guidance for 2011 is likely to be adjusted downward, and 2) it will shine the light on Sprint’s need to spend capital to support its network,” Fritzsche noted in a report.
The report noted that the potential for higher subsidies would make it difficult for Sprint Nextel to reach its guidance on EBITDA, though that could be offset by an increase in gross customer additions. In addition, Sprint Nextel may need to spend additional funds on beefing up its network ahead of a launch, something that would have to be in addition to the $5 billion the carrier said it will need to spend as part of its Network Vision upgrades.
Fritzsche also questioned the spectrum requirements such an addition might require, noting Sprint Nextel’s current relationship with Clearwire Corp. will “ultimately be part of the solution.”
Despite the challenges, Wells Fargo said the upside potential outweigh the risk.
“Will life for Sprint be all rosy with the iPhone? We believe the answer is no. There are still undoubtedly key questions which need answers (spectrum and 4G strategy key among these), but the trade off brings more positives than negatives, in our view,” the report explained. “In a world that seems to be increasingly leading toward three national competitors, we believe [Sprint Nextel] needs the iPhone to help maintain share and relevancy in the marketplace. We believe with an iPhone in its arsenal, [Sprint Nextel’s] value message will continue to resonate with customers – especially vs. [AT&T Mobility] and [Verizon Wireless].
Others remained cautious on the prospects as well. Industry analyst Jeff Kagan noted that the mild impact Verizon Wireless’ launch of the iPhone could be even more muted at Sprint Nextel.
“This is a great device, and it will let Sprint hang on to some customers who would otherwise leave, but I don’t think many customers will move to Sprint because of the iPhone,’ Kagan noted. “While definitely good news, I don’t see this shaking the timbers at Sprint.”
Kagan added that other issues could be more pressing for the industry’s No. 3 player.
“Sprint has bigger worries with the pending AT&T/T-Mobile merger. This device, while good news, won’t solve their growing more serious problems,” Kagan said.
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