Sprint Just Signed Its Own Death Certificate

On its analyst day last Friday, Sprint Nextel (NYSE: S  ) sure gave investors something to talk about. Far from reassuring anybody, however, the event instead unleashed a torrent of analyst downgrades plus a 30% haircut to the share price.

The nation's third-largest mobile network operator (after giants AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) ) basically gave up on its WiMAX high-speed data network, sending shares of WiMAX partner Clearwire (Nasdaq: CLWR  ) down by a drastic 40%. In its place, Sprint wants to deploy a network using the other 4G networking standard -- the LTE technology currently being deployed by Verizon.

Explaining their downgrades, the analyst chorus boils down to two words: "expensive" and "uncertain."

Nomura Securities, for example, notes that the network upgrade plan results in a negative $2.3 billion of free cash flow next year, probably forcing Sprint to find as much as $3 billion in funding through new debt or dilutive stock sales. That's a lot of capital pressure for a company with a $6.4 billion market cap. And in the words of Kaufman Bros., "This is not necessarily a strategy we view as prudent for shareholders."

Shares have lost more than 60% of their value in the last three months, so it's obvious that investors generally agree with Kaufman's opinion there.

Sprint has joined the increasingly less exclusive club of Apple iPhone distributors, but still can't figure out how to remain relevant in the duopoly-like state of the American wireless market. The Clearwire-fueled 4G advantage has come and gone without elevating Sprint to the majors.

Perhaps Sprint shifted network gears to make itself more compatible with the competition, painting takeover crosshairs on its own back. Or maybe this Hail Mary strategy shift is exactly the misguided comeback attempt that it looks like.

I think that Sprint presented this plan with a perfectly straight face. My CAPS portfolio doesn't contain many thumbs-down positions, but Sprint just became one. If the company ever finds a buyer, the final price for this debt-riddled and befuddled also-ran should be well below today's prices.

Want to follow in my All-Star footsteps? Just click here to voice your own opinion on Sprint's future. The Web's largest community of intelligent investors only gets better with every brain that joins the hive mind. Get started right away -- it's free!

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and AT&T, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 10, 2011, at 4:09 PM, spokanimal wrote:

    Clearwire has 1/5 the debt that Sprint has, 150mhz of contiguous, nationwide spectrum, and a network infrastructure that's already at the technology level that sprint seeks to achieve for it's own network via the network vision program.

    If sprint abandons clearwire and clearwire were to market it's assets, the payoff could be many times the current value of it's stock.

    Stay tuned... Clearwire is a FAR better value than sprint... if it could unlock the immense value of it's assets.

    S

  • Report this Comment On October 10, 2011, at 5:49 PM, FirstGratefulDad wrote:

    Mr. Glen Post III,

    I would like to make a plea for your attention. The combined forces of Sprint and Century Link would eliminate any and all discussion of Sprint being a third rate cellular carrier, which it isn’t. Sprint’s untapped bandwidth & spectrum, its fiber optic and cellular networks, the revolutionary upgrades to its cellular service through Network Vision, its Machine to Machine capabilities and the industry’s recognition for the best in customer service should be enough to justify the merger.

    There is no denying you need to be providing a cellular service to your Corporate Liable customers, Sprint could and should be that solution. With Sprint’s capabilities and your capital there would be no further discussion of a duopoly in the cellular industry.

    Bring Embarq home!

  • Report this Comment On October 10, 2011, at 6:35 PM, jhf678 wrote:

    I thought only dogs love to lick bones, but it looks like human love it more. Sprint has been attacked ever since there was a rumor about the iPhone. Now they got the iPhone to compete with the two giants. Greedy giants won`t even give Sprint the bone, after they ate all the meat.

  • Report this Comment On October 14, 2011, at 5:01 AM, JOHN121212 wrote:

    Yes, I have been very unhappy with Sprints and Clearwire's share prices this year. In fact I am very suprised. I still beleive in Sprint though. It is a very good company and I think it has put up a great fight for markets against AT&T and Verizon. I will now state what I feel and also beleive what Sprint/Nextel will do in the near future. I like many others being holders of Sprints stock were very unhappy with there 4G WIMAX program. There seems to be a problem with the mangement of Clearwire and also I would guess a problem of Sprints upper management how Sprint and Clearwire are running their 2 companies forward looking business goals. Sprint had the first 4G Wimax program out there till Clearwire said it needed more money to start up the new 4G network and the new WIMAX network which seems to have stalled. But hey look I have not seen so much excitement in Telecom since the new computer rage in the early to mid 1980's And why you might asked? Well it is much like the coming age of the old semiconductor shortage days when the computer, cell phones, telecom equipment infrastructure build out which now is the start of its 3rd phase and it is going to be a beauty. Have you and many of the very well educated folk remember in the early 70's till well in the 1980's that how fast telecoms new shelf products use to be obsolete in 6 months? That then a new chip was made or a new computer board with higher chip speeds would become the next big cash flow machine? How many times have you seen lets say laptop's needed new upgrades on their boards making the old computer boards obsolete and making a new phase of new orders of new telecommunication equipment, and computers begin to fly off the Best Buy and PC Richards selfs? And do not forget about the Cell Phones which are now called smart phones? We are going to see so much growth in this market that will make the old semiconductor shortage back in the late 1970's into well the 1980's look like a babies diapers order.

    Now getting back to Sprint I do not believe Sprint has no choice but to buy out the remaining shares of Clearwire's and merge. Sprint then will be ahead nicely with spectrum they would be taking in making Sprint have a sign on their backs saying

    if you want to buy me the new share price is back in the twenty's Do not kid yourself this new upgrade in telecomunications products is about to take off like no other new business orders run that you have ever seen. Also in the very new future you will first see the new smart phone that will replace your laptop and desk top computer to a hand held mini computer. I say buy both and then hold Sprint and Clearwire.

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