Little more can be said about Sprint Nextel's (NYSE: S ) situation. In a somber assessment of a decaying business, the company announced fourth-quarter earnings today. Everyone knew it would be bad, but the provider of telecom services still managed to shock investors with a grim assessment of the future.
Revenue for the fourth quarter dipped 6% to $9.8 billion, as growth in the wireless business continued to decline. Profitability also sagged, with quarterly and full-year free cash flow falling 50% and 21%, respectively. On top of this, the company took a massive $29.7 billion non-cash impairment charge related to the Nextel merger.
Investors weren't the only ones surprised by the ugliness inside Sprint Nextel's operations. New CEO Dan Hesse admitted that the problems were even worse than he anticipated coming into the job. And to be honest, when I provided a bearish opinion on the company at the very end of 2007, I didn't think things would get this bad.
But all of Sprint Nextel's major competitors -- AT&T (NYSE: T ) , Deutsche Telekom's (NYSE: DT ) T-Mobile, and Verizon Wireless (a joint venture between Verizon Communications (NYSE: VZ ) and Vodafone (NYSE: VOD ) ) -- are ruthlessly pouncing on the company's subscribers with new unlimited talk plans. Sprint Nextel finally upped the ante with its own $100-per-month unlimited use plan, including messaging and data, but it may be too little, too late.
Sprint Nextel is almost certain now to have only a minor role, if any, in plans for a nationwide WiMAX network. One-time partner Clearwire (Nasdaq: CLWR ) and big-money backer Intel (Nasdaq: INTC ) may be on their own with the innovative next-generation platform. For its part, Sprint Nextel is piling up reserves to hunker down for tough times ahead. The company drew down $2.5 billion from a revolving credit facility, suspended its dividend, and halted all purchases of its own stock to conserve cash in a tight credit environment.
Investors should anticipate some drama in the near term: Vultures are likely circling the company in earnest now, and large shareholders may seek alternatives to force Hesse's hand. Like 10 plumbers standing around a leaky toilet, each will have a different theory on how best to plug the flow of stench. Cleaning up the mess will take a long, long time.
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