Rivals' deal trips up Sprint

SAN FRANCISCO

Sprint Nextel Corp. shares on Monday had their worst day in two years as Wall Street targeted the company as one with the most to lose from AT&T Inc.'s planned $39 billion acquisition of Deutsche Telekom's T-Mobile USA business.

Sprint, the third-largest U.S. wireless carrier and previously reported in talks to buy T-Mobile, finds itself in an even more tenuous position, analysts said.

"We were bearish about Sprint's subscriber-growth prospects," said Bernstein Research analyst Craig Moffett. "But the [AT&T/T-Mobile] deal would make those prospects decidedly worse."

Investors drove the company's shares down by 69 cents, or 13.6 percent, to $4.36 Monday, the stock's worst one-day performance since December 2008.

If regulators approve the deal between AT&T, the No. 2 wireless carrier in the United States, and T-Mobile, the fourth-largest mobile-phone company, AT&T will surpass Verizon Wireless as the No. 1 wireless carrier in the United States, with about 130 million customers.

Sprint, already well behind AT&T and Verizon in terms of customers, will look weaker and have a harder time luring new subscribers away from its larger rivals, analysts said.

Sprint reportedly had been deep into talks of its own to acquire T-Mobile. The surprise announcement of the AT&T deal sent a signal that Sprint's offer wasn't in the same league as that of AT&T.

"A Sprint deal is now off the table and Sprint is left to go it alone," said Bernstein's Moffett, in a research note.

Moffett cut his rating on Sprint's stock to underperform from market perform, just after raising his rating on Sprint last week. Moffett also cut his price target on Sprint's stock to $3 a share from $5, and said his upgrade last week may be "our most ill-timed upgrade ever."

Didn't see this one coming

Jonathan Chaplin, of Credit Suisse, said the AT&T/T-Mobile deal basically caught the market by surprise, and said the possibility of an even larger AT&T signals rough times ahead for Sprint.

The connection between Sprint and Clearwire Corp. is seen as a tricky one. Clearwire runs a wireless broadband network and the company is building and managing Sprint's 4G wireless network. Sprint owns a majority stake in Clearwire and resells the company's services.

Sprint is in a dispute with Clearwire over how it prices Clearwire's services, and Clearwire has said it is in dire financial straits. In December, the company sold $1.3 billion in bonds after earlier saying it could run out of cash by the middle of 2011.

Analysts said a deal with T-Mobile would have helped Sprint deal with its Clearwire issues.

"Sprint will now be left having to fund Clearwire on its own, said Bernstein's Moffett. "It is still in Sprint's interest to see Clearwire succeed, given the size of its investment. [But] a deal with T-Mobile would clearly have offset this burden, in part."