Sprint Wins the Argument, but It’s Still Losing the War
Shares of Sprint are rallying by about 6 percent in after-hours trading, on word that AT&T has abandoned its $39 billion bid for T-Mobile.
That’s really only a jump of 13 cents per share — a figure that says a lot about the pickle in which Sprint remains, despite the fact that its arguments against the AT&T-T-Mobile combination have prevailed.
Sprint no longer has to deal with the threat of a merged AT&T-T-Mobile. But it still has to cope with the fact that it is a distant No. 3 to AT&T and Verizon Wireless. And, after betting on a different 4G technology, the company also has to bring up an entirely new network, all while trying to turn off its older Nextel network.
Still, there is some cause for celebration, an opportunity that Sprint did not let go to waste.
“From the beginning, Sprint has stood with consumers who spoke loudly and clearly that AT&T’s proposed takeover of T-Mobile would create an undeniable duopoly that would have resulted in higher prices, less innovation and fewer choices for the American consumer,” Sprint said today in a statement, in which it also praised federal regulators for their opposition to the deal.
Sprint and its CEO, Dan Hesse, had opposed the deal mightily before government regulators and Congress, and in the court of public opinion, investing a lot of political capital in the process.
That said, the deal’s failure doesn’t exactly help Sprint out of the messy spot it’s in.
For one thing, Sprint is still losing money. In its most recent quarter, it booked a $301 million loss on revenue of $8.3 billion, which was an improvement over the prior year’s period. On the bright side, it added 1.3 million customers — and that was before it had Apple’s iPhone in its stores to help entice new customers.
But while having the iPhone is nice, it’s not helping the bottom line. As The Wall Street Journal reported in October, Sprint has committed to buy more than 30 million iPhones, which will cost it as much as $20 billion over time, and on which it expects to lose money through at least 2014.
And that’s not even the half of it. Sprint also plans to spend big to build a new LTE network in 2012, and currently relies on WiMax as its 4G technology. With $5 billion in cash and short-term investments on its balance sheet as of the end of December, Hesse said, the company will have to go to the credit markets and borrow to get the build-out done.
Meanwhile, its relationship with the wireless broadband concern Clearwire isn’t exactly helping. Clearwire is the provider of Sprint’s 4G technology, and relies heavily on Sprint for its funding. By using Clearwire’s WiMax technology, Sprint was first to the market with 4G, something that gave it an early advantage over its rivals. But that the move also left Sprint alone as both AT&T and
T-Mobile Verizon joined numerous carriers in Europe in moving to a rival 4G technology, known as Long-Term Evolution, or LTE.
Had Sprint not started the move to LTE, it likely would have faced an increasingly tough time getting device makers to bring out their latest and greatest devices for a WiMax standard that few other carriers were adopting.
So for Sprint, while one important battle is won, the war to turn the company around — and it will be a tough one — is far from over, and far from victory.
Update: Initially I identified T-Mobile as going launching an LTE network, which it’s not. I meant to say Verizon. Sorry about that.
AllThingsD’s Ina Fried contributed to this report.