Analyst: Sprint LTE iPhone likely will be financially manageable

Sprint Nextel's (NYSE:S) potential launch of an LTE version of Apple's (NASDAQ:AAPL) iPhone later this year probably won't cripple the company, a financial analyst said. 

In a research note released Friday, Guggenheim Securities analyst Shing Yin said that an LTE iPhone launch--widely expected sometime later this year--could be a "Goldilocks" scenario for Sprint, with the carrier selling enough iPhones to meet its contract with Apple but not too many that its finances are badly damaged. "In the end, Sprint's iPhone sales may be just right--not too high so as to destroy margins (through the iPhone's outsized subsidy), but not too low so as to cause share loss and put Sprint's take-or-pay minimum purchase commitment at risk," Yin wrote. Sprint has signed a four-year, $15.5 billion contract with Apple, and the carrier sold 1.8 million iPhones in the fourth quarter of 2011.

Yin's more optimistic outlook contrasts sharply with that of Bernstein analyst Craig Moffett, whose warnings of a possible Sprint bankruptcy sent shockwaves through the market last week. Moffett noted that Sprint may face challenges relative to Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) if and when an LTE iPhone is announced. Sprint will launch LTE by mid-year on 10 MHZ of its G Block PCS spectrum, and its LTE network will be smaller than AT&T and Verizon's to start.

However, Yin said Sprint's LTE network design won't cause problems. "In our view, the relative lack of capacity in Sprint's LTE network is unlikely to be noticeable by users for some time, since the network will initially be underutilized ... Users do not necessarily make their purchase decisions on the basis of the network, but rather focus on the device first and foremost," Yin wrote.

"First, we note that after a year of heavily advertising and promoting LTE, Verizon was able to convert only 5 percent of its postpaid subscriber base to its LTE network ... Second--and more convincingly, we think--we note that in 2010, Sprint managed to sell WiMAX devices to over 3 million (about 10 percent) of its postpaid customers. Someone truly concerned about network quality should have chosen a Verizon LTE Android device [in 2011]. Yet Sprint added more WiMAX users last year than Verizon added LTE users," Yin wrote

Verizon expects to expand its LTE network coverage from around 200 million POPs currently to 260 million by the end of 2012. AT&T will expand its LTE network from 74 million POPs to around 150 million by year-end. Sprint will launch LTE in 10 markets by mid-year and plans to have 123 million LTE POPs covered by the end of 2012 and 250 million to 277 million POPs covered with LTE by the end of 2013. By mid-2013 Sprint hopes to begin taking advantage of Clearwire's (NASDAQ:CLWR) forthcoming TD-LTE network, which it expects to use as a way to add capacity in dense urban areas. 

For more:
- see this Barron's blog post
- see this Kansas City Business Journal article

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