LTE iPhone Could Bring Sprint “To Its Knees”

Sprint has made a big bet on the iPhone. And if it manages to pull it off, building out a competitive 4G network in time for the launch of the LTE version of the device later this year, it could do well by it.

But if it doesn’t?

Then things start looking ugly. Really ugly, says Bernstein Research analyst Craig Moffett.

Moffett on Monday slapped an “underperform” rating on Sprint’s shares, warning that the debt-laden company could end up filing for bankruptcy if its Network Vision upgrade doesn’t deliver the compelling next-generation wireless offering it needs.

“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 said in a note to clients. “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.”

In other words, Sprint’s competitiveness may well be further eroded when LTE reaches widespread adoption.

Moffett sees the company’s fate playing out in one of two ways. The first: “The company successfully navigates its complicated Network Vision upgrade, stabilizes Clearwire’s financial position, and delivers a compelling 4G product.”

The second is quite a bit more dismal: “Some combination of Sprint’s gargantuan take-or-pay contract with Apple, a hobbled 4G offering, and a stupendous debt burden bring the company to its knees.”

So, is Sprint headed for bankruptcy? Not necessarily. “To be clear, we are not predicting a Sprint bankruptcy,” Moffett said. “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.”