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iPhone 5 rumors: LTE iPhone could trigger Sprint bankruptcy

by Nicole
March 20, 2012 at 4:50 pm

Sprint shares dropped 5 percent today after a financial analyst estimated that the carrier faces an increasing risk of bankruptcy.

In a research note on Monday, Bernstein Research analyst Craig Moffett cited a “possible bankruptcy” as a “very legitimate risk” for current shareholders.

“To be clear, we are not predicting a Sprint bankruptcy,” Moffett wrote, as quoted by Forbes. “We are merely acknowledging that it is a very legitimate risk. And notwithstanding a recent rally in Sprint shares, we believe that risk is rising.”

Following the release of the report, Sprint shares dropped 13 cents, or 4.5 percent, to $2.76 Monday morning on the New York Stock Exchange.

Moffett sees two scenarios that could happen this year.

“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.”

The analyst believes that the situation could worsen in the fall when Apple plans to release an LTE iPhone 5 since the carrier is not yet equipped to support the network.

“We believe an LTE iPhone will likely be badly disadvantaged on Sprint’s network, potentially impairing sales … at a time when Sprint is subject to a punishing take-or-pay deal with Apple,” Moffett wrote.

“The problem is 4G. Sprint doesn’t have enough free-and-clear spectrum on which to launch a competitive LTE network, and it doesn’t have the money to clear spectrum that’s already in use. We expect Sprint’s competitiveness to begin to backslide when LTE becomes the nation’s de facto standard.”

Sprint’s rivals AT&T and Verizon Wireless already offer support for the technology, which could prompt a “crisis” for the carrier as the company has committed to purchasing iPhones in a $15 billion contract from Apple.

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