Bernstein analyst Craig Moffett downgraded Sprint shares to “underperform” from “market-perform,” and more significantly thinks there is a risk Sprint could go bankrupt in about four years. You might wonder why.
Moffett argues there is potential danger ahead because of Sprint’s heavy debt loads and possible spending needed to support an Long Term Evolution version of the Apple iPhone.
Sprint will face “new and larger risks” if Apple launches a high-speed iPhone later in 2012, Moffett argues.
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The problem is that Sprint does not, in Moffett’s opinion, have the ability to buy or clear enough spectrum to compete with iPhones using Long Term Evolution expected to be offered by AT&T and Verizon Wireless.
“The problem is 4G. Sprint doesn’t have enough free-and-clear spectrum on which to launch a competitive LTE network, and it doesn’t have the money to clear spectrum that’s already in use,” Moffett says. “We expect Sprint’s competitiveness to begin to backslide when LTE becomes the nation’s de facto standard.”
“To be clear, we are not predicting a Sprint bankruptcy. We are merely acknowledging that it is a very legitimate risk. And notwithstanding a recent rally in Sprint shares, we believe that risk is rising,” Moffett said in a research note.
Moffett said he does not expect Sprint to file for bankruptcy any time soon. But he cautioned that it is due to repay $2.6 billion of its debt in 2015, the same year $3 billion in debt comes due for Clearwire Corp, which is majority owned by Sprint.
Sprint already has made a $15.5 billion commitment to buy iPhones from Apple over the next few years, whether or not Sprint can sell them.
Sprint is also embarking on a $7 billion network upgrade to support LTE, but some worry spectrum could be an issue, in addition to increasing Sprint’s debt load.