Aug. 8 (Bloomberg) -- Sprint Nextel Corp., the mobile-phone carrier that lost more than 3.5 million customers since 2006, may seek to raise money through an outside investment after pulling out of a convertible stock sale, Citigroup Inc. said.

Sprint, the third-biggest U.S. wireless company, may also make another attempt to sell convertible preferred shares if the market improves, debt analyst David Hamburger said today. Sprint scrapped plans for the $3 billion offering yesterday after failing to find the terms it sought.

Sprint stock had its largest two-day gain in six years. Chief Executive Officer Dan Hesse may step up asset sales as he seeks to cut Sprint's $23 billion in total debt and fights to win back customers from bigger competitors AT&T Inc. and Verizon Wireless. A sale of the network acquired through the $36 billion purchase of Nextel Communications Inc. also may take on ``a greater sense of urgency,'' Hamburger said.

The Nextel network assets, purchased in 2005, were valued at $7.8 billion at the end of June, Sprint said this week in a regulatory filing. Sprint wrote down the value of the assets by almost $30 billion in the fourth quarter. Sprint spokesman James Fisher didn't return phone messages today.

Hamburger recommended buying Overland Park, Kansas-based Sprint's 6 percent bond due in 2016. The note rose 1.25 cents on the dollar to 87.25 cents on the dollar, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The yield fell to 8.14 percent.

Sprint gained 93 cents, or 12 percent, to $8.72 at 4:01 p.m. in New York Stock Exchange trading. Over the past two days, the shares have risen 19 percent, the most since July 31, 2002.

`Hunkering Down'

By backing off plans to raise funds, Sprint may compromise its long-term success in exchange for pleasing shareholders by avoiding a dilution of the stock, said Ping Zhao, an analyst at CreditSights Inc. in New York. Sprint will cut debt incrementally with tweaks to its agreements with lenders and with cash from operations, cutting back on investments in its network, she said.

Sprint is spending less on its wireless network and focusing on customer retention rather than new subscribers, Hesse said this week on a conference call. Capital spending on the wireless network may reach about $2.6 billion this year, about half the amount in 2007, the company said.

While that will help Hesse avoid violating the terms of bank covenants, the moves may hinder the carrier in competing with AT&T and Verizon, since Sprint won't be improving the quality and coverage of the wireless network as much over time, Zhao said.

Hunkering Down

``They are hunkering down basically to survive,'' said Zhao, who said she expects Sprint shares and debt to perform in line with the rest of the market. ``Eventually it will come back to bite them.''

Sprint's bank covenant requires it to keep debt no higher than 3.5 times its profit in the past four quarters, excluding depreciation, amortization, interest and taxes. Sprint's ratio for its bank covenant remained at 2.9 at the end of June, Fisher said this week.

The company's wireless networks are performing at record levels, with fewer dropped and blocked calls and higher voice quality, Sprint said this week. Several spending projects to broaden coverage and speed up wireless Internet connections were completed last year, the company said.

If the turnaround progresses, Sprint should meet the terms of its bank covenant, said Bill Densmore, an analyst at Fitch Ratings in Chicago.

``Provided they can continue some of these operating trends, the improvements they made in the second quarter, they would likely have sufficient capacity under the covenants,'' Densmore said. ``If they continue to get pressured, particularly on the cash flow side, then things would get much tighter.''

Asset Sales

To raise funds, Hesse already has pursued some asset sales, agreeing to sell 3,300 wireless towers for $670 million to TowerCo LLC. The carrier, which has $3.5 billion in cash, said it still plans to cut $1 billion in debt this quarter and is exploring other ways to reduce it faster.

SK Telecom Co., South Korea's largest mobile-phone operator, may seek to invest in Sprint, Hamburger said. The company said last month that while it's expanding in the U.S., it's not planning to acquire a U.S. carrier.

Lauren Kim, a representative for Seoul-based SK Telecom, didn't immediately return to an e-mailed request for comment outside of regular business hours.

Sprint is in ``not informal'' talks to sell the Nextel unit with a number of partnerships including private-equity firms and telecommunications executives, CNBC reported today. An agreement could take months to finalize, the financial news network said.

NII Holdings Inc., the Reston, Virginia-based provider of wireless service in Latin America, may also have interest, CNBC said. The company uses similar technology to that of Nextel's network. NII Holdings spokesman Tim Perrott said he didn't have any information and couldn't confirm the report.

Moody's Investors Service rates Sprint credit at Baa3, just above non-investment grade status, or junk. Standard & Poor's rates it at BB, or junk.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net.

Last Updated: August 8, 2008 16:18 EDT