S&P cuts Sprint's credit rating, citing postpaid worries

Standard & Poor's Ratings Service downgraded Sprint Nextel's credit rating, making good on its warning from November. S&P cited the carrier's continuing postpaid subscriber losses as a key worry, despite the growth the carrier has seen in the prepaid business.

"Even if postpaid subscriber losses abate and the company continues to right-size its cost structure, key credit measures are unlikely to improve in the near term," S&P analyst Allyn Arden wrote in a release. The company's rating was cut to BB-, which is three levels below investment-grade credit. Arden had warned in November that Sprint's BB rating was at risk of being lowered if the company did not show potential for a turnaround in 2010. Fitch ratings, meanwhile, reaffirmed its credit rating of BB on Sprint, but said its outlook remains negative.

Sprint has turned to prepaid, especially through it Boost Mobile brand, as a key growth engine as it struggles to reverse postpaid subscriber losses. The company did not manage to return to overall subscriber growth in the fourth quarter--but it did substantially slow the rate of its losses.

Sprint spokesman James Fisher declined to comment on the rating cut. However, Sprint itself recently acknowledged its own precarious situation in its 10-K filing with the Securities and Exchange Commission. "Our recent efforts to attract new postpaid subscribers and reduce churn have not been as successful as those of our competitors," Sprint said in the filing. "Our postpaid subscriber losses and high rate of churn have impaired our ability to maintain the level of revenues generated in prior periods and caused deterioration in the operating margins of our wireless operations and our operations as a whole, the effects of which will continue if we do not attract new subscribers and reduce our rate of churn."

In the fourth quarter, Sprint lost 148,000 net customers, including net losses of 504,000 postpaid customers. That's an improvement from the 545,000 net wireless customer losses, including net postpaid subscriber losses of 801,000, Sprint recorded in the third quarter.

For more:
- see this Dow Jones Newswires article (sub. req.)
- see this Kansas City Star article
- see this Kansas City Business Journal article

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