Sprint Puts Its Future in Hock

The wireless provider's debt load is a hurdle its rivals don't have to clear.
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Sprint is a fitting name because it does feel like the wireless carrier is in a never-ending race to catch up to its rivals. Unfortunately for the $27 billion company, it also has to clear hurdles -- of the debt variety -- that the other top carriers don't.

Sprint is losing money, burning through cash and has had to turn to sale-leasebacks of its assets and airwaves. In its latest move, the company announced Wednesday that it will sell a portion of its 2.5-gigahertz and 1.9-gigahertz spectrum, raising $3.5 billion to help fund the business. Bloomberg's Scott Moritz has compared Sprint's mortgaging of its airwaves to "borrowing against the tires to make car payments."

Masayoshi Son will have you believe that it's all part of a 300-year master plan. The Japanese entrepreneur controls Sprint through his Softbank wireless entity, which has a market value of about $76 billion, and he wants to build a telecommunications and technology empire that will endure for generations and throughout whatever industry transformations come its way.

300-Year Dash

Sprint shares have staged a recovery in recent months as subscribers came back. Japanese billionaire Masayoshi Son says seizing control of Sprint is part of his 300-year business plan.

Source: Bloomberg

But let's get past 2017 before we start thinking in centuries, because next year is a big one for Sprint -- and its financial position remains precarious.

The IOUs

A portion of Sprint's debt coming due this year came from Clearwire, which it took control of in 2013 to gain spectrum for faster download speeds. Now it's resorted to using some spectrum as collateral.

Source: Bloomberg

Yes, the Sprint service has been able to win back subscribers with aggressive promotions, which explains why its stock has surged almost 90 percent this year. It's in an unlimited-data price war with T-Mobile and recently threw shade at Verizon by stealing its former TV pitchman who used to ask, "Can you hear me now?" So, Sprint the service has some momentum again, but Sprint the company is still bleeding money.

Making Progress

Sprint added more wireless subscribers than expected in its fiscal first quarter, a sign that CEO Marcelo Claure's turnaround attempt may be starting to work.

Source: Bloomberg

Its balance sheet is a huge problem because Son really wants to buy T-Mobile and 2017 looks to be the year that a deal may become feasible. 

T-Mobile, which not long ago bumped Sprint from the No. 3 market position, may be back in play after the government-run spectrum auction (which Sprint couldn't afford to take part in) wraps up this year. And with the U.S. about to elect its next president, a new Federal Communications Commission chairman may be in the not-too-distant future, too. Son and Sprint had abandoned a cash-and-stock takeover proposal for T-Mobile in mid-2014 because of regulatory concerns 1  and they're hoping the next FCC chairman will be more amenable to a combination of the two wireless carriers. 

But Sprint will hardly be the only bidder for T-Mobile, and the list of deep-pocketed potential suitors has only gotten longer. A cash-and-stock offer from the struggling carrier may not cut it this time. Comcast is looking to enter the wireless market, Charter and America Movil could be interested as well and the ever-unpredictable Dish Chairman and CEO Charlie Ergen is still lurking. Also, don't forget European companies such as Altice, which recently bought cable provider Cablevision as part of its goal to generate more revenue in the U.S., and Iliad, which bid for T-Mobile in the past only to be rebuffed by T-Mobile's parent Deutsche Telekom.

Sprint is already strained by its debt load, but now it could be hamstrung right as T-Mobile comes back on the market.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Current FCC chairman Tom Wheeler has said the U.S. wireless market needs four strong players, preventing Verizon, AT&T, T-Mobile and Sprint from pursuing mergers with one another.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net

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