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How much value is there in being the No. 3 wireless company in the United States? Not much, judging by the stock price of Sprint Nextel Corp., the company that fits the description.

Sprint had the misfortunate of releasing disappointing results just ahead of the recent market meltdown. It dropped 40 per cent in two weeks and traded at a 52-week low of just under $3 (U.S.) Thursday.

In the short term, this creates a buying opportunity, as the next several months provide a couple of opportunities for the shares to rebound on good news. That, in turn, would create a selling opportunity, as Sprint has a number of challenges that make it an iffy proposition for the long-term portion of a portfolio.

The Kansas-based company, known as a long-distance provider a couple of decades ago, now gets 90 per cent of its revenue from the wireless business. That's a proportion twice as high as Verizon and AT&T Inc., both of which, nonetheless, it trails in total wireless customers.

Sprint's second-quarter numbers prompted worries that it's not catching up and is instead having trouble attracting customers who want top-of-the line products such as Apple's iPhone, which it does not sell. Sprint lost 101,000 "postpaid" subscribers, the term for the valuable creditworthy customers who have their service billed to them on a monthly basis. (Wall Street analysts' consensus was a gain of 23,000.)

That could change in a few weeks, however, as a number of analysts expect Apple Inc. to add Sprint to the iPhone lineup. An announcement of that sort would spread the Steve Jobs pixie dust magic to Sprint with a quick short-term bump. (The converse is true: An iPhone 5 announcement absent Sprint could drive the stock even lower.)

Sprint plans an announcement of its own in October that may reassure investors: a resolution over the uncertainty over its plans for 4G, the "fourth generation" of wireless. While Sprint was the first of the major U.S. carriers to introduce service branded as "4G," it was based on a technology called WiMax. The other carriers later rolled out offerings based on a technology called LTE, for "long-term evolution." Sprint now says it plans on adopting LTE.

How it will do so remains unclear. Its two known options to help build an LTE network are cash-challenged, debt-heavy publicly traded network company ClearWire, of which Sprint owns 55 per cent; and a private company called LightSquared, which Sprint said last month it will partner with for a network "co-building" agreement. Neither ClearWire or LightSquared are seen by the market as robust partners.

(As an aside, Friday's announcement that Sprint will not be selling the LTE-focused PlayBook from Research In Motion Ltd. may say more about Sprint than it says about RIM.)

The LTE quandary drives much of the concern among the most pessimistic analysts. Christopher King and Josh James of Stifel Nicolaus, who put a "sell" rating on the company in early June, say "Sprint runs the risk of being left behind from a 4G perspective," they said.

Morgan Stanley's Simon Flannery, who has a "sell" rating and a $3 price target, believes Sprint may spend billions of dollars over the next three to five years on its network and technology, creating "high execution/free cash flow risks." Sprint, with more than $18-billion of debt, has little room for error.

Its relatively weak balance sheet, combined with the uncertain U.S. regulatory landscape, makes a takeover unlikely. U.S. authorities may still approve AT&T's purchase of fourth-place T-Mobile – a deal Sprint has been vigorously fighting – and allow the wireless market to consolidate from four major players to three. If so, there seems little chance they would allow Sprint to sell to a larger competitor, taking the market down to a mere two players.

Even with the recent decline in price, Sprint still trades above Verizon and AT&T on the basis of enterprise value (market capitalization plus debt) to EBITDA (earnings before interest, taxes, depreciation and amortization), according to Standard & Poor's Capital IQ. (As a money-loser, Sprint has no P/E to calculate.) AT&T and Verizon offer dividend yields in the 6-per-cent range; Sprint pays no dividend.

It all adds up to a deeply challenged company that has earned its current low price. The short-term news from Sprint, though, may provide periodic pops in the stock that reward strong-stomached investors. Choosing Sprint for the long term, however, risks disconnecting you from profits.



Special to The Globe and Mail

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