Sprint Gets Rating Downgrade

Fitch Ratings has downgraded its rating for Sprint Nextel following a fourth quarter in which the carrier lost 1.3 million subscribers and posted a $1.62 billion loss.

Fitch changed the third-largest U.S. mobile operator's rating from "BB+" to "BB," and it said the carrier is facing multiple challenges because of the tough economic times and increased competition from the likes of AT&T, T-Mobile, and Verizon Wireless.

"While Sprint Nextel believes past customer experience issues with customer care, network quality, and retail distribution have been largely resolved and are on par with its peers, the company's competitive position remains weak due to lagging perception issues, brand challenges, and past advertising spending levels," Fitch said in a report. "The positive momentum experienced by its financially stronger competitors and the general economic downturn creates a significant headwind for Sprint Nextel to increase its share of gross additions in order to stabilize its subscriber base."

Sprint was the only major carrier to lose subscribers last quarter, and it recently dipped under 50 million subscribers for the first time in years. The $1.62 billion loss was primarily because of a one-time $1 billion write-down, Sprint said.

Fitch also expressed concern over Sprint's commitment to the iDEN network, and questioned the long-term sustainability of the business unit. Sprint plans to use this network to offer unlimited voice, data, text, and push-to-talk services for its Boost Mobile unit.

On the positive side, Fitch said Sprint has done an adequate job of having cash available to pay off debt. The company ended the year with $3.7 billion available, and it will have to pay about $1.2 billion in debt by January 2010.

While Sprint continues to lose customers, its stock rose more than 27% after the fourth quarter. Its postpaid subscriber growth appeared to have stabilized, and more than 10% of customers upgraded their handsets in the quarter, according to CEO Dan Hesse.

The company also is expecting to get a big boost from the upcoming exclusive release of the Palm Pre. The smartphone will be the first to have Palm's webOS, and it could give Sprint a viable alternative to the iPhone 3G, BlackBerry Storm, and the T-Mobile G1.

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