Can WiMax Save Sprint (S)?

by Douglas McIntyre | October 13, 2009 6:08 am

It would be overly simple to say that Sprint (S[1]) is in a race for its survival as a public company to get its 4G network up, while it tries to keep AT&T (T[2]) and Verizon Wireless (VZ[3]) from taking its customers. But that is fairly close to the truth.

Sprint’s customer service problems have caused the company’s subscriber base to continue falling. Part of these problems stem from Sprint efforts to integrate its wireless platform with NexTel, a company it bought to try to remain competitive in wireless market share.

Sprint does not have widely-successful product like the Apple (AAPL[4]) iPhone.

Sprint has begun to deploy its new next-generation wireless system, known as WiMax. WiMax is supposed to make low-cost high-speed Internet access available on a wide variety of mobile devices, including laptop PCs, smart phones, cameras, music players and more.

The system is part of a joint venture with broadband company, Clearwire (CLWR[5]). The operations are funded in large part by Intel (INTC[6]), Google (GOOG[7]) and several large cable firms.

These companies have put $3.2 billion into the venture to pay for the deployment costs. Intel will provide chips for many of the WiMax-powered devices. Google and the cable companies are part of the venture, because they have their own axes to grind with AT&T and Verizon.

The rollout of Wimax has already begun in a number of medium-sized cities. And Salem, Oregon, Milledgeville, Georgia and the Texas cities of Amarillo, Killeen-Temple, Corpus Christi, Lubbock, Waco, Wichita Falls, Abilene and Midland-Odessa were recently added.

Not A Lot of Good News for Sprint

Sprint’s prospects without WiMax are not terribly bright. It has $20.3 billion in debt. Its revenue has been shrinking and is now at $8.3 billion a quarter. The telecom has lost money in most quarters over the last two years.

Sprint did break even in the third quarter a year ago. Analysts expect the company to lose 14 cents in the third quarter of this year and 16 cents in the fourth quarter. Sprint’s subscriber count is down to 49 million, and most experts expect that figure to keep dropping.

There are not many large companies that are a one-bet investment. Sprint is close. If it can get wireless broadband with speeds approaching home-cable into the market well before its rivals, it will have a value proposition that should appeal to millions of cellular subscribers who do business with Sprint’s competitors.

Cable companies are likely to be willing to bundle wired services with Sprint WiMax to help fight AT&T’s and Verizon’s bundled packages. This will give Sprint access to customers it might not easily be able to reach under other circumstances.

Over the last two years, Sprint’s stock is down 80%, compared to about 35% for Verizon and AT&T. Investors in the number three cellular company would make a great deal of money if Sprint could close that valuation gap, and it could happen quickly if WiMax is a significant success.

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Endnotes:
  1. S: http://studio-5.financialcontent.com/investplace/quote?Symbol=S
  2. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  3. VZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=VZ
  4. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  5. CLWR: http://studio-5.financialcontent.com/investplace/quote?Symbol=CLWR
  6. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  7. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  8. Top 5 Stocks for October: http://investorplace.com/experts/louis_navellier/articles/gallery/top-stocks-for-october.html
  9. 5 Hot Stocks for Boomer Consumers: http://investorplace.com/experts/jim_woods/baby-boomer-stocks-to-buy.html
  10. Is Twitter Worth $1 Billion?: http://investorplace.com/experts/douglas_mcintyre/articles/twitter-investors-twitter-stock-symbol.html
  11. download your FREE copy here: http://investorplace.com/order/?sid=DF3208

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