Sprint Nextel Fate Source of Speculation

KANSAS CITY, Mo. - Sprint Nextel Corp.'s plummeting stock price and the expected exodus of millions of subscribers this year have yielded a fresh round of speculation about the company's future.

But analysts disagree whether the nation's third-largest wireless carrier is ripe for a takeover, is likely to begin selling parts of its operation to generate cash and make itself more agile, or will soldier on as-is.

"Any time you have a stock that's down as much as this one is and with management departures and things like that, people start speculating on all kinds of things that the company may or may not do to improve things," said Todd Rethemeier, an analyst with Soleil Securities.

So far neither Sprint nor its prospective suitors will comment on the rumors.

In the meantime, investors seem skeptical of a turnaround: Sprint's shares have lost more than half their value since the beginning of January. They lost 23 cents to close at $5.99 Thursday.

Sprint, based in Overland Park, Kan., has struggled since acquiring Nextel Communications Inc. in August 2005. Two weeks ago, it announced it had lost 683,000 wireless subscribers with annual contracts and expected to lose another 1.2 million in the current quarter and a similar amount in the second quarter of 2008.

A Merrill Lynch analyst speculated this month that Deutsche Telekom, the parent company of No. 4 wireless company T-Mobile, might consider buying Sprint to bulk up and prevent an escalation of flat-rate pricing in the industry.

But the two carriers' technologies are incompatible, a challenge Sprint has already seen enough of in the merger with Nextel.

The Wall Street Journal has surmised that Mexico's Carlos Slim, who operates the dominant wireline and wireless networks in that country, might see Sprint as a way to get into the U.S. wireless market.

"We do note that it still has compelling assets that could make it an attractive acquisition target (likely a foreign buyer)," Oppenheimer & Co. analyst Tim Horan wrote in a note to investors late last month. (Parentheses were in the original text.)

Verizon Wireless and various U.S. cable providers, who need wireless in their fight with traditional telephone companies, have also long been named as potential Sprint buyers.

Rethemeier said he has serious doubts about a pending takeover, noting that a Verizon bid would face stiff antitrust scrutiny due to the combined company's size and that merging with T-Mobile would be costly.

"If that were to happen, I think you would see the other players in the wireless industry with big smiles on their faces that day," he said.

Other industry observers have predicted the company might just try to sell off pieces. The most likely candidate has been the company's WiMax network, a wireless broadband service currently being tested in three markets and expected to be expanded later this year under the Xohm brand.

Chief Executive Officer Dan Hesse hasn't predicted the fate of WiMax, which former CEO Gary Forsee proposed two years ago as a way to help Sprint leapfrog its competitors into future generations of wireless service. The project's $5 billion price tag has scared off investors and analysts, who claim WiMax is too experimental.

Stanford Group analyst Michael Nelson said he thinks the company is in talks with Clearwire Corp. and Intel Corp. to spin WiMax off as its own company.

"I believe Sprint ideally would like to deconsolidate the WiMax asset, get it off the balance sheet and reduce the amount of capital spending required to build out the network," Nelson said. "The tricky part is trying to maintain some of the upside that a (fourth-generation) network would accrue."

Nelson doubts the company will sell its Nextel-branded network, which has seen the largest number of customer defections.

"It takes two to tango and I don't see a willing, logical buyer for that asset," he said. "It's a technology that's being phased out, and it's part of the business that's really bleeding customers."

He also said the company ultimately may have fallen too far to attract a rescuer, meaning it will have to regain subscribers and make the long climb back to prominence on its own.

"Sprint, on a whole, this is something they are going to have to deal with," he said.

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