Sprint in the News

[varipapa]

Time to dump Sprint!??!?!!
------------

Woes of Its Wireless Affiliates
Become Audible at Sprint PCS

By JESSE DRUCKER and MITCHELL PACELLE
Staff Reporters of THE WALL STREET JOURNAL

Like many wireless carriers, Sprint PCS is plagued by dropped customer calls. Now, the mobile unit of Sprint Corp. is facing the threat of chunks of its network dropping.

The Overland Park, Kan., wireless provider, the nation's fourth largest, developed its network in part through independent affiliates. But these 10 affiliates, which cover nearly one-quarter of the population served by Sprint's wireless network, are burdened with more than $3 billion of debt, and several face liquidity crises. One of them, the iPCS unit of AirGate PCS Inc., said Wednesday it intends to seek Chapter 11 bankruptcy-court protection early this year.

Creditors of these affiliates are looking to Sprint, in part, for a bailout. But Sprint, which is clinging to an investment-grade debt rating and can ill afford to foot the bill for a rescue, is balking. In a worst-case scenario, the standoff could cause large patches of its cellphone network to go dark abruptly.

The crisis highlights how the telecom meltdown that has devastated long-distance suppliers, upstart local carriers and equipment manufacturers is spreading to the wireless arena. For Sprint, which has depended on growth in its wireless unit to offset problems in its long-distance business, the timing is poor. In the past year, shares that track the performance of Sprint PCS have lagged behind wireless peers; on Thursday, the stock stood at $4.97, down seven cents, on the New York Stock Exchange, well off a 52-week high of $18.45.

If any of Sprint's affiliates run out of cash and patches of its wireless network go dark, customers would probably defect. But if Sprint agrees to bail out iPCS or AirGate, other affiliates probably would seek similar support, which could spook credit-rating agencies. Problems with slowing growth already have knocked Sprint's credit rating down to a notch above "junk" status.

So far, Sprint has engaged in a high-stakes game of chicken with AirGate, refusing to negotiate and pushing it to work out its problems with its own creditors. Those creditors, however, are unlikely to give much ground without Sprint at the table.

Link to Full Wall Street Journal Article (subscription required)

[Moleman]

that is pretty bad news... I hope they can pull out....

[ConceptVBS]

Blah..they better fix their stuff or they will lose millions of customers like myself.

[snoopy20]

Yeah, that's bad for Sprint ... I think T-Mobile USA is kind of in a rut but not as bad since the subscribers have been booming a bit. Anyway, Sprint needs to stick around, good for competition.

[eakenn]

Blah! Sprint should've bought out those "affiliates" long, long ago.

But as the saying goes "shoulda, woulda, coulda"

Will be a sad day if one or two of their affiliates goes under and they refuse to buy them out and take on their debt load.....perhaps Sprint should look into buying up US Cellular & AllTel? I dunno....or the unthinkable.... VZW gobbles up SPCS? Hmm. The wireless world in the US overall isn't doing so well financially....sigh.

[dundoleo]

Originally posted by Moleman
that is pretty bad news... I hope they can pull out....

Oh, NOT.!..good riddance to a sh#%ty company. They care for their employees the same way they care about their customers...expendable!
Oh, and they are grabbing at straws! I had a customer come in to my store today. He has been with SPCS since 1998. He finally got fed up and called to cancel. They offered him 750 A/T minutes nationwide with free LD and Unlimited N&W...all for just $40 a month. He still dropped them and activated with us...SWEET!
Ta ta SPCS! It couldn't happen to a more deserving company!

[qili]

sprint is doing the smart thing not bailing out those troubles "companies". There is no enterprise value in any of those operators: they don't sign up customers, they don't market themselves to other wireless operators, they are nothing but a few towers.

A better alternative (for sprint) is to wait for the companies to file and let them go through a chapter 11 then a 363 sale, or a chapter 7 liquidation and buy the assets (licenses + towers, etc.) for a song. and at the same time retains its cusotmer.

[eakenn]

Originally posted by qili
sprint is doing the smart thing not bailing out those troubles "companies". There is no enterprise value in any of those operators: they don't sign up customers, they don't market themselves to other wireless operators, they are nothing but a few towers.

A better alternative (for sprint) is to wait for the companies to file and let them go through a chapter 11 then a 363 sale, or a chapter 7 liquidation and buy the assets (licenses + towers, etc.) for a song. and at the same time retains its cusotmer.

Makes sense, and its probably cheaper for them in the long run.

[Moleman]

Originally posted by qili
sprint is doing the smart thing not bailing out those troubles "companies". There is no enterprise value in any of those operators: they don't sign up customers, they don't market themselves to other wireless operators, they are nothing but a few towers.

A better alternative (for sprint) is to wait for the companies to file and let them go through a chapter 11 then a 363 sale, or a chapter 7 liquidation and buy the assets (licenses + towers, etc.) for a song. and at the same time retains its cusotmer.

exactly my thought.. The reason why sprint wont buy them is because of their huge debt load..Maybe this was the plan long ago,,was to let these affiliates go bankrupt and then buying them out.....ANOTHER ENRON....

[IdiOTeQnoLogY]

ummm...........they do sign up customers. lots of them in fact. AirGate PCS i think already reported for 4th quarter it had over 30,000 net additions to spcs.

[eakenn]

Originally posted by IdiOTeQnoLogY
ummm...........they do sign up customers. lots of them in fact. AirGate PCS i think already reported for 4th quarter it had over 30,000 net additions to spcs.

They sell service under the SprintPCS name, right? or do they actually sell service as AirGatePCS in their local areas?

[Moleman]

the reps wear Sprint PCS shirts and everything.... You wouldnt even know the difference if you walked into their "sprint store".

[Drag'nGT]

Originally posted by dundoleo
Oh, NOT.!..good riddance to a sh#%ty company. They care for their employees the same way they care about their customers...expendable!
Oh, and they are grabbing at straws! I had a customer come in to my store today. He has been with SPCS since 1998. He finally got fed up and called to cancel. They offered him 750 A/T minutes nationwide with free LD and Unlimited N&W...all for just $40 a month. He still dropped them and activated with us...SWEET!
Ta ta SPCS! It couldn't happen to a more deserving company!

[varipapa]

One reason the affiliates are going under is that Sprint is making them sign people up with bad credit ratings and no deposit.

Sprint is in big trouble because:

1) Sprint has no money and borderline credit itself

2) If an affiliate goes bankrupt, anyone (eg: Verizon) can buy them.

Maybe Vodaphone should buy them (and sell their Verizon shares?)

Next few months will be interesting!

[varipapa]

So far, Sprint has engaged in a high-stakes game of chicken with AirGate, refusing to negotiate and pushing it to work out its problems with its own creditors. Those creditors, however, are unlikely to give much ground without Sprint at the table.

"Sprint has a decision to make," says one person involved on behalf of an affiliate. "Either let all the affiliates go illiquid ... or assist them in getting to a financial situation that's viable. Sprint is terrified that if it makes a deal with one, every other guy is going to have his hand out."

Len Lauer, president of Sprint PCS, declines to comment specifically on his conversations with affiliates, but says: "We're very committed to the principle that we won't take actions with respect to affiliates which would weaken Sprint's credit rating or balance sheet." He says contingency plans have been made to ensure Sprint's wireless network stays running.

While many Wall Street analysts accept Sprint's view that it faces little risk, bondholders and bankers say they don't see how Sprint can emerge from the affiliate crisis without some dent to its bottom line, even if it escapes from the darkest scenario. While the affiliation fees represent a tiny sliver of Sprint's overall revenue, assuming responsibility for the affiliates' networks could add up to noticeable additional costs, especially when the company is trying to reduce costs and its overall debt load.

The affiliation agreements seemed like a no-lose proposition when Sprint struck them between 1998 and 2000. The carrier would get coverage in smaller and medium-size markets, such as Fresno, Calif., and Savannah, Ga., and avoid costly capital spending. Affiliates would brand their services with the Sprint PCS logo, follow the carrier's pricing plans and share revenue with Sprint.

But, mirroring an industry trend, subscriber growth at Sprint's affiliates has slowed sharply, and the affiliates don't have large customer bases to cushion the impact.

To make matters worse, beginning in May 2001, Sprint eliminated deposit requirements for customers with poor credit, spurring enormous subscriber growth, but eventually forcing the carrier and its affiliates to cancel service to hundreds of thousands of subscribers who didn't pay their bills. The problem reached a crescendo in the third quarter of 2002, when Sprint PCS became the first national U.S. wireless carrier to report a net quarterly loss of subscribers.

Several affiliates say they asked almost immediately to opt out of Sprint's no-deposit program, but were turned down by the carrier. As a result, last year many affiliates began reporting sky-high "churn," the rate at which subscribers leave the service. The no-deposit program "was not very kind to us," says Larry Paxton, vice president of finance for Shenandoah Telecommunications Inc., of Edinburg, Va., which runs a Sprint wireless affiliate.

At the heart of the current dispute are revenue-sharing agreements, including a recent cut by Sprint in the rate that Sprint pays its affiliates for "roaming" onto their networks. Creditors don't want to make concessions on restructuring debt unless Sprint is willing to negotiate these fee arrangements. Their leverage: They can force the weakened affiliates into bankruptcy, which could trigger a host of complications for Sprint.

AirGate's iPCS unit already is in default of a bank credit-facility agreement, because it missed a deadline to file its 10-K last month. In the 10-K, filed late Wednesday, AirGate wrote: "While the lenders and noteholders have expressed willingness to work with iPCS, Sprint has informed us it is unwilling to restructure its agreements with iPCS." Given the high percentage of revenue it pays Sprint, the company added, "our ability to control costs through our own cost-cutting measures is more limited."

In the next year, financial woes are expected to deepen at several other affiliates as well. For instance, UbiquiTel Inc., based in Conshohocken, Pa., recently sent letters to bondholders related to a potential debt restructuring.

If Sprint were flush with cash, it might consider buying the struggling affiliates and paying back their creditors -- or at least pumping some extra cash into the operations. Sprint's agreement with its affiliates stipulates that if an affiliate defaults on the pact -- and insolvency or bankruptcy would trigger such a default -- Sprint is entitled to take over the affiliate's operations, or to buy its operating assets for 72% of what they are worth.

Just how those rights and obligations will affect the current standoff is unclear. Even a takeover of iPCS's operations would cost Sprint money. Moreover, Sprint acknowledges that a clause permitting it to cancel the agreement in the event of a bankruptcy filing may not be enforceable.

Sprint says it has backup roaming agreements with other carriers in at least some of the affiliates' areas. Still, that probably would entail higher roaming expenses for Sprint. Some suggest that Sprint could actually seize on a bankruptcy to acquire the network assets for a fraction of what they cost to build. Indeed, bonds of many of the affiliates trade at just pennies on the dollar.

Creditors of iPCS are currently looking for potential legal claims against Sprint that would allow them to force a buyout by Sprint, people involved with the matter say. AirGate's iPCS unit, which has its own bonds, has retained Houlihan Lokey Howard & Zukin as financial adviser. Meanwhile, iPCS bondholders have retained counsel at Paul, Weiss, Rifkind, Wharton & Garrison LLP.

Creditors may be loath to force an affiliate into liquidation since the most valuable assets of any wireless carrier -- the lucrative radio-wave spectrum licenses -- are actually held by Sprint, not the affiliates.

Another potential solution for Sprint: rejigger the revenue-sharing formula -- or defer the payments -- so that more cash remains with the affiliates, making it easier for them to pay their bills and making creditors more willing to renegotiate the debt. That would take a small bite out of Sprint's bottom line but wouldn't involve the added expense of paying to run the networks.

"We don't intend to negotiate on fees, but like anything else, I don't rule anything else out in the future," says Sprint's Mr. Lauer. He says the affiliates'_"biggest issue" isn't the operating fees but "the amount of debt they have."