Sanford C. Bernstein analyst Craig Moffett is downgrading Sprint stock
insisting the company faces "a very legitimate risk" of bankruptcy. The reasons for the downgrade are obvious, given that Sprint's high pay out for the iPhone and their costly looming LTE network puts the company on even more tenuous footing in their battle against AT&T and Verizon. Still, Moffett's note seemed to almost enjoy piling on, causing Sprint's stock to take a beating earlier this week. His note puts a Sprint bankruptcy at about 50%:
“Sprint’s stock price may be best thought of as the awkward probability-weighted expected value of two distinctly different outcomes. In the first, the company successfully navigates its complicated Network Vision upgrade, stabilizes Clearwire‘s financial position, and delivers a compelling 4G product. In the second, some combination of its gargantuan take-or-pay contract with Apple, a hobbled 4G offering, and a stupendous debt burden bring the company to its knees.
Like most investors, Moffett has long whined about absolutely any and all network upgrade costs
, and Sprint's preparing for a major one. Sprint's certainly going to have to engage in a lot of spectrum juggling to get LTE built, but in a market where AT&T and Verizon sit on most of the spectrum -- that shouldn't be news to anyone. They'll initially use their PCS G block 10 MHz nationwide licenses for a 5 MHz x 5 MHz LTE channel, refarm their SMR 800 MHz spectrum as they shutter the iDen network, then rely heavily on Clearwire now that LightSquared is dead. Moffett simply doesn't believe Sprint can field a quality LTE product:
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. We expect Sprint’s competitiveness to begin to backslide when LTE becomes the nation’s de facto standard.
Again, the fact that Sprint's wallet is tight or that their LTE build will be tricky is not really news. Sprint's board is so nervous about the upgrades that they bucked CEO Hesse's attempt to acquire MetroPCS
fearing it would be too many moving pieces. Still, Moffett is not exactly known for singing on key when it comes to predicting wireless fortunes, insisting back in 2009
that the wireless industry was "collapsing." Stock holdings for all carriers are threatened if there's worries about a price war, so it's in Sanford Bernstein's best interests to assure investors that Sprint shouldn't be taken seriously.
Given the obvious investor interest in charging more money for less product, Moffet's been at the forefront of the push toward metered billing
, going so far as to call AT&T's low caps and $10 per GB overages "the next generation of communications." Sprint's the last major hold out still offering unlimited smartphone data, and putting a little extra pressure on Sprint could help nudge them toward killing unlimited smartphone data sooner rather than later. With pressure both outside and from within, it would be surprising if Sprint's unlimited smartphone data plan survives the year.