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Tuesday, August 15, 2006

Sprint's Bright Future (S)

Sprint Nextel hit a 52-week low last week, trading at $16.40 off a 12-month high of $26.89. Things has been so promising when the two cell firms merged.

Now, Moody's has downgraded the company's debt due to its investment in its new 4G network. The company says it will put up $2.5 to $3 billion for the build out.

As churn in the company's subscriber base made cost to replace these customers more expensive, the company dropped its operating income estimate for the year from $13 billion to as low as $12.6 billion.

Revenue for the last quarter was up 8% to $8.5 billion. Revenue grew faster if Nextel was factored in.

Bear Steans downgraded Sprint to "peer perform" due to its slowing growth in its subscriber base.

But then Sprint came up with a public roadmap for its comeback: WiMax. Teaming with technology built by Intel and Motorola, Sprint annouced a huge bet on the future of wireless communication. One that is less expensive that other 4G options, like those from Qualcomm, and opening a door for devices that can surf the web from a phone that will fit in the palm of your hand.

Suddenly, opinion began to turn. UBS was quoted in Forbes as saying that Sprint might make its 2006 guidance. The Radio and Internet Newsletter, quoted at MarketWatch, said that Sprint's new system could be the dawn of a new era in internet radio.

Sprint has said that its new network, built with the help of Intel, Samsung, and Motorola, will be able to reach 100 million people by 2008.

The new Sprint initiative may flank Verizon Wireless and Cingular, its larger rivals. The bet is risky, but if it pays off, Sprint will have a technical edge built on the back of research and development at Motorola and Intel. It will also have these companies as powerful partners.

Sprint may be down, but it is not out.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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