Moody's Investors Service downgraded Sprint Nextel (NYSE:S) further into junk territory thanks to the company's heavy spending.
The ratings agency cut Sprint's rating to Ba3 from Ba2 and attached a negative outlook. The ratings agency said the downgrade reflects its view that Sprint's credit profile, despite recent operational improvements, is likely to erode as the company spends a significant amount to modernize its networks all the while working to formulate its 4G strategy for the long haul. Moody's said it also believes that the ongoing dispute between Sprint and Clearwire deteriorated the competitive advantage of both companies, while its competitors speed ahead.
"The sacrifices required to turn around the company following the Nextel acquisition and the disastrous structure of the Clearwire partnership have led to Sprint's current predicament" noted Moody's Senior Vice President Dennis Saputo in a research note.
The firm believes that the newly created agreement between Sprint and Clearwire (NASDAQ:CLWR) over wholesale pricing is a positive, but see a struggle to execute the basic agreement since Sprint's majority ownership and status as Clearwire's largest customer demonstrates the lack of agility within the partnership."Sprint and Clearwire are bound in a symbiotic relationship whereby each will be made weaker without the cooperation of the other," Saputo said.
Moody's believes that Sprint's plan to address the deficiencies in its dual networks will eventually achieve meaningful cost savings but the firm said it is unconvinced that Clearwire will be able to bridge the gap and allow Sprint to continue offering a competitive 4G service until 2013 when Sprint's upgrade nears completion.
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