Is Sprint Preparing for a Turnaround?
Sprint (NYS: S) , the country's third-largest wireless operator, finally has something to cheer about after the disastrous acquisition of Nextel network, which it plans to shut down by the middle of next year. The company, considered to be a perpetual laggard behind larger competitors AT&T (NYS: T) and Verizon (NYS: VZ) , now seems to have overcome a major financial hurdle as it secured a loan of $1 billion (with another $2 billion likely to follow soon) from Sweden's Ericsson for buying equipment needed to set up the next-generation LTE technology-based network. Shutting down the Nextel network will also help as it will release spectrum required for the LTE network. Both AT&T and Verizon already have their own LTE networks up and running.
Coping with five years of continuous losses is no happy task and Sprint is well aware of this. The results are proving painful for investors as well as the company's shares lost almost half their value since June 2011. But what's more important for the company may be to realize that it does not have much time on its hands, as it races ahead with the LTE rollout in what may be termed a make-or-break situation for Sprint.
At the same time, securing the loan should go at least some of the way in allaying investor concerns about a possible $5 billion to $7 billion funding gap in setting up the LTE network. That also brightens up the scenario where the company has to cope with a whopping $15.5 billion contract to market Apple's iPhone. Sprint's capital spending during its first quarter increased drastically over that of the prior-year period to $800 million.
Not that the partnership with Apple hasn't benefited Sprint, with 44% out of the total 1.5 million iPhones sold by the latter during the quarter being new activations, which in turn has significantly upped the average revenue per user. This is also another area where Sprint has scored over AT&T and Verizon, both of which have reported drops in iPhone activations. But then, with the iPhone 5 almost sure to have LTE capabilities, that also cuts down on the time required for Sprint to do its groundwork.
Going ahead, I do see some bright spots on the horizon. The Nextel pain may be worth just a few more quarters, but after that, it should be smooth sailing ahead. Also, this may be a classic case of the hare and the tortoise as Sprint can actually take advantage of the longer time to set up the LTE network by utilizing the latest technological advances made by then.
This may be the time to keep a close eye on Sprint and you can keep yourself updated on all the latest events surrounding the company by adding it to your very own free watchlist.
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At the time this
article was published Fool contributor Subhadeep Ghose does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Apple.Motley Fool newsletter serviceshave recommended buying shares of Apple.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. The Motley Fool has adisclosure policy.
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