I'd like to say that if it wasn't for bad luck, Sprint Nextel (NYSE: S ) would have no luck at all. But you can't blame Sprint's woes just on luck. The company has made its own mess of things, the most infamous misstep being its merger with Nextel and its push-to-talk network. This turned out to be a synergistic nightmare: two non-compatible wireless technologies, Sprint's CTDM and Nextal's iDEN, pushed into a shotgun wedding. The progeny of this mismatched union was doomed from the beginning.
First choice is not always the best But now we're in the era of "4G," that being the buzzword for fourth-generation wireless technology. To its credit, Sprint was quick to get into 4G. Unfortunately, it now seems to have jumped in too quickly, going with an early 4G technology known as WiMAX. This has proven to be the wrong choice because a considerably faster 4G technology known as LTE soon showed up.
Because the speedier LTE is the technology that Verizon (NYSE: VZ ) and AT&T (NYSE: T ) are using for their 4G networks, Sprint is faced with a problem: How is it going to also build out an LTE network while still providing WiMAX coverage for its current 4G subscribers?
Sometimes the second choice is not so hot either True to form, Sprint made another questionable decision. It signed a 15-year agreement with LightSquared to provide it with an LTE network. The problem with this is that LightSquared's proposed network is mired in a controversy with the GPS industry. It claims that much of LightSquared's spectrum allegedly interferes with GPS signals and could potentially cause airplanes to crash.
Well, that's not good, and until those problems are worked out -- if at all -- Sprint's LTE plans with LightSquared are uncertain.
Maybe renting is better than buying To compound the problem with Sprint's original 4G network choice, it fell into the trap of buying 54% of the company that provided it, Clearwire Communications (Nasdaq: CLWR ) , and now it's not sure what to do with it and its WiMAX network.
The problem is Clearwire says it needs $600 million to build an LTE network, money it doesn't have. Nor does it have the $150 million to $300 million needed to maintain and improve its existing WiMAX network. Last Friday, Sprint told investors and analysts that it will not provide any funding for Clearwire, so Clearwire is looking for it elsewhere. It's been talking to other telecoms, including AT&T, Verizon, MetroPCS (Nasdaq: PCS ) , and Leap Wireless (Nasdaq: LEAP ) . The relationship between Sprint and Clearwire is truly up in the air.
Clear as a pin (dropping in mud) Sprint now has four networks: its existing 2G/3G networks which use a combination of CDMA and EV-DO, its push-to-talk iDEN network, and its 4G WiMAX network. And now it quickly needs to get one more, an LTE network, if it has any chance at all of become competitive again. But how it's going to do that is still as unclear as a conversation held via two tin cans and a piece of string.
And now trying to find massive funding in a credit market meltdown.
This would be the stuff of pulp fiction one would never buy...
Except last Friday made a believer out of me.
Sprint is on a mission to drive its stock to sub $1 and file for a BK reorg to emerge GM-like into a viable competitor.
The pro camp is a bit lacking in vigor and analyses, however.
In a note to clients today, Wells Fargo’s Jennifer Fritzsche reiterated an Outperform rating on Sprint shares, writing that the Q3 call should resolve some concerns. “While we acknowledge that Hance’s comments will put more investor interest in Sprint’s Q3 call’s prepared remarks and again refocus investors on a specific day, we do expect Sprint realizes last Friday investors needed to hear more and we expect that to be addressed on its Q3 call,” she writes.
Skepticism persists, however. Walter Piecyck with BTIG Research writes today that the ability of Sprint to raise capital to fund increased capital spending is not an issue. Sprint has $4 billion in cash, and could spend a billion and draw another billion from a revolving credit line to pay off its Q1 debt maturity of $2.25 billion.
The issue is the cost, he writes:
Sprint’s delays in raising new capital has cost it dearly as new debt issues will likely carry a coupon in excess of 10% compared to the current average interest payments of 7%. The company’s delays in issuing new debt and the prior strategy of starving capital investment while paying down debt have put the company in an unenviable but not impossible position.
Likewise, David Novosel of Gimme Credit today reiterates a Sell rating on Sprint shares. Liquidity is “robust,” writes Novosel, but free cash flow will be negative the next two years, he thinks. “$2.3 billion of debt matures in 2012, with another $1.8 billion due in 2013, and approximately $1.35 billion due in 2014. Therefore cash on hand will not nearly satisfy the debt maturities,” notes Novosel, even as Sprint’s capital spending burden rises from what had originally been $4 billion to $5 billion over multiple years to now more like $10 billion.
Again, the risk is the price of debt, he writes: “What scares investors is that the company may need to come to market during a period of turbulence, where marginal borrowers such as Sprint either are shut out or have to pay egregious rates.”
Both Novosel’s and Piecyck’s notes are in contrast to a more encouraging note yesterday from FBR Capital’s David Dixon, who concludes that the funding gap is a not a big deal.
Sprint’s Hesse, on Quest to Alienate Every Living Human, Compares AT&T Chief to John Wilkes Booth
By Greg Bensinger
Sprint Nextel CEO Dan Hesse said AT&T’s mobility chief Ralph de la Vega looks like Abraham Lincoln assassin John Wilkes Booth.
The jab, or joke, didn’t get much response from a crowd at a convention in San Diego, causing Hesse to backpedal. He clarified by saying it was a compliment because Booth was reputed to be good looking.
For his part, de la Vega called Hesse “the best actor in wireless today,” a reference to Booth’s profession and, apparently, to Hesse’s appearances in Sprint advertisements.