iPhone May Bring Sprint 'To Its Knees'

NEW YORK (TheStreet) - Is Sprint(S) on a slow walk to bankruptcy?

A prominent telecoms analyst argues that the some investors are already pricing in a 50/50 probability of a filing over the next five years as the nation's third leading wireless carrier struggles to build a network to competitively handle the iPhone.

A next generation LTE iPhone from Apple(AAPL) may put Sprint at a disadvantage against larger carriers AT&T(T) andVerizon(VZ) , moving the company in the direction of bankruptcy, argues Bernstein Research analyst Craig Moffett in a March 19 note.

That's because Sprint's still budding 4G network will be tested in a big way when Apple launches a LTE iPhone that's expected later in 2012. In contrast, AT&T and Verizon have networks with extensive national coverage that are tracking at a much quicker completion.

Moffett of Bernstein Research sees two scenarios for Sprint playing out with investors split evenly on the company's prospects.

"In the first, the company successfully navigates its complicated Network Vision upgrade, stabilizes Clearwire's financial position, and delivers a compelling 4G product. In the second, some combination of its gargantuan take-or-pay contract with Apple, a hobbled 4G offering, and a stupendous debt burden bring the company to its knees."

That second scenario increases Sprint's bankruptcy risk, which Moffett notes is already a 50% probability according to prices on contract that guarantee the company's debt for 5 years.

The crux of the problem is that as Sprint looks to bolster its smartphone services, the company may run dry on finances as it bolsters its wireless network through an increasingly expensive partnership with Clearwire(CLWR) and takes on a $15 billion plus commitment to carry the iPhone. As Sprint's debts begin to mature through 2015, the company may find it hard to raise additional capital to fund its network and selling commitments, increasing the prospect of bankruptcy, Moffett argues.