Sprint Nextel Corp. (S) plans to launch 4G Long-Term Evolution (LTE) networks in mid-2012, keeping pace with its rivals –– AT&T Inc. (T) and Verizon Communications Inc. (VZ).
Additionally, the third-largest U.S. wireless carrier would cover almost the entire U.S. population by year-end 2013, as revealed at its investor day meet.
The 4G LTE evolution signals a shift from the company’s current WiMax (a wireless broadband technology) network, offered in collaboration with Clearwire Corporation (CLWR). Sprint will discontinue WiMax offerings by the end of next year. The company substituted the wireless broadband network with a 15-year deal it inked with LightSquared. The agreement entails LightSquared to help Sprint upgrade or build its own networks.
Meanwhile, as stated at the meet, Sprint needs to raise funds over the next two years to upgrade the network. As much as $4 billion to $5 billion is estimated to be expended over three to five years to upgrade its network and build LTE.
No doubt, this investment will dilute Sprint’s free cash flow for the next two years. But liquidity is expected to improve once LTE is fully deployed.
Moreover, the company will have to shell out for subsidizing the new Apple Inc.’s (AAPL) iPhone 4S. Sprint has promised to buy about 30.5 million iPhones from Apple over the next four years and pay $500 to subsidize the product. The iPhone will nevertheless help Sprint to gain new customers while retaining the old. This will lead to increased subscriber growth, reduced churn and higher average revenue per user.
We currently maintain our long-term Neutral recommendation on Sprint. For the short term (1–3 months), the stock retains a Zacks #3 (Hold) Rank.
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