WSJ: Sprint may not have enough unused spectrum for high-quality LTE rollout

While Sprint has already turned on its LTE service in 15 markets, a report in the Wall Street Journal over the weekend says that Sprint might not be able to complete a high-quality LTE spectrum in time to prevent customers from departing the carrier. Sprint is planning on converting part of its network currently used for Nextel for its LTE pipeline. Unfortunately, that part of the puzzle won't be available to Sprint until 2014. A few months ago, Sprint said that it would be closing its iDEN PTT Direct Connect service as soon as June 2013 as it switches over to CDMA Direct Connect. To complete the LTE network build out, he nation's third largest carrier will be relying on its Clearwire subsidiary to fill in the gaps, but by then it might be too late to prevent a mass exodus of customers.

Verizon currently covers 330 markets with its LTE signal and AT&T has 47 LTE markets. T-Mobile will be starting to build its system sometime next year. Sprint has held on the belief that with fewer subscribers than Verizon and AT&T, it will require less spectrum than those two. But the difference is that Sprint does not have the cash that fills the vaults at Verizon and AT&T. In the first quarter of this year, the carrier lost 192,000 subscribers and $863 million. Brokerage house Sanford Bernstein says that shutting down the Nextel network will result in a drop in revenue right at the time that costs for building the LTE network peak.

While Sprint did report $7.6 billion in gross cash at the end of Q1 (Hey! No cash is gross to us) which should support the expected $5.7 billion cost of the LTE build out over the next two years, the carrier has some debt due which we're sure they would rather payoff then risk a visit from their friendly banker. The amount of debt due through next year equals $1.8 billion with an additional $1.4 billion due in 2014 and $2.6 billion due in 2015. From those years forward, debt remains elevated. And sitting back and doing nothing won't work. The company has $22 billion in debt with a market value of $10 billion. Based on quotes for Sprint's credit default swaps (basically a financial transaction that protects your debt holdings from bankruptcy) from financial information provider Markit, investors are pricing in a 47% chance that Sprint will go bankrupt.

The one thing that would help solve Sprint's problems, an increase in business, may not be in the cards. For years, Sprint said that business would be much better if only it could offer the Apple iPhone to its customers. Last year, Sprint took a $15.5 billion gamble, signing a contract with Apple guaranteeing that amount of sales of the popular smartphone over a four year period. BTIG says that the deal calls for the mobile operator to sell 6.25 million to 7.5 million units of the device each year, or pay a penalty. Sprint's first quarter report shows that it is selling the phone at an annualized rate of 6.2 million units. While Sprint won't comment on the actual amount of Apple iPhone it has contracted to sell each year, it does say that with the addition of units sold through its pre-paid Virgin Mobile subsidiary, it should be able to meet the requirements of the contract with Apple. CEO Dan Hesse earlier said that the carrier won't make money on the contract with Apple until 2015.

source: WSJ