|Sprint's network upgrade is a high-risk strategy, warn analysts.|
OVERLAND PARK, Kan. ( TheStreet) - Sprint's ( S) plan to build out its own 4G network, announced on Friday, has struck fear into investors, who are understandably anxious about the strategy's financial impact. Shares of Sprint continued their downward trajectory on Monday, falling almost 8% by late morning. The company's stock closed down nearly 20% on Friday after Sprint explained that it will need to raise money to build out its 4G LTE network.
The Overland Park, Kan.-based company, which currently relies on Clearwire's ( CLWR) WiMax 4G network, said that it plans launch its own 4G LTE network by mid-2012 and complete the network build-out by the end of 2013. Craig Moffett, an analyst at Bernstein Research, echoed shareholder concerns in a note released on Monday. "The degree of difficulty in executing their Network Vision transition will be extraordinarily high," he warned, adding that the coming years will be problematic for Sprint investors. "In 2012 and 2013, Sprint will simultaneously face incredible stresses on their finances, their network, their product line-up and their customer services/brand." Sprint, desperate to claw share from AT&T ( T) and Verizon ( VZ), clearly sees salvation in 4G LTE, particularly following its recent addition to Apple's ( AAPL) coveted list of U.S. iPhone carriers. As bandwidth-hungry iPhone users strain its network, Sprint wants the extensive coverage offered by 4G LTE. With the no.3 telco expecting to spend $4 billion to $5 billion on its strategy by the end of 2013, though, Wall Street sees trouble ahead. "Based on our forecasts (which do include the iPhone) and assuming the company wants $2.5 billion in liquidity after wrapping up the Network Vision project, it appears that Sprint will need to raise something like $4.9 billion over the two and a half years," he wrote. "Even if Sprint is able to do so, it will come at a high price." The company's debt, notes the analyst, is currently trading to yield 11% or more, and if the credit markets remain choppy, Sprint's borrowing costs could be higher than expected. Sprint, eyeing a longer-term game, estimates that the financial benefit over its strategy will be between $10 billion and $11 billion over a seven-year period.
Still, analysts remained unconvinced. Sprint received a slew of downgrades on Monday, with JP Morgan warning that its network build and iPhone-related costs could cut into earnings. Kaufman Bros. also noted that the company is leveraging up its balance sheet to pay for LTE expansion while Deutsche Bank warned that the no. 3 telco could lose 4G market share to Verizon ( VZ) and AT&T ( T). Clearwire has also taken a hit from Sprint's 4G plan. Shares of the WiMax specialist closed down 32.2% on Friday, despite Clearwire's attempt to downplay to Sprint's comments. Clearwire's stock was down 3.72% on Monday. -- Written by James Rogers in New York. >To follow the writer on Twitter, go to http://twitter.com/jamesjrogers. >To submit a news tip, send an email to: firstname.lastname@example.org