Sprinting down the road to nowhere – fast

After all the ballyhoo and bs, the reassurances and the spin, Sprint now says that it will, after all, be writing-off as much as US$31 billion (yes, billion!!) in relation to its 2005 merger/ acquisition/colossal mistake with Nextel Communications (you decide which description fits best with the reality of that staggering example of overweening corporate hubris).

Despite all the PR blandishments about the benefits of the economies of scale and heightened competitive advantage that would result from the takeover, the amalgamation of the two telcos has been a disaster.

Currently, Sprint remains the third-largest mobile carrier in the US and once had aggressive plans to elbow its way to the Number Two position However, the hard reality is that is losing subscribers so fast it can hardly keep track of the numbers of defections. We know though that more than a million of its customers voted with their feet last year and went off to rival operators such as AT&T and Verizon Wireless. We also know that many of those who gave up on Sprint were subscribers to the much-vaunted iDEN "push-to-talk" services so vociferously marketed by Nextel.

The simple fact of the matter is that since the merger Sprint has effectively been lumbered with the necessity of running two networks in tandem. This has cost it dear and Sprint had said that it would stop any further investment in iDEN at the end of December 2007, leaving the service to wither on the vine.

However, last week, Sprint's top brass did an abrupt about face and told an astonished Wall Street that it has now decided to throw good money after bad and continue to plough cash into iDEN until "at least" 2012 – and this despite the acknowledged and very evident fact that Sprint is losing even more subscribers from iDEN service than it is from its CDMA network and that the ARPU of those customers those that do remain on iDEN is falling like the proverbial stone. Nonetheless, Sprint says it will "add features to our popular push-to- talk system" and introduce new handsets.

It's rather like TV manufacturer Zenith announcing that it's going to introduce a new line in mechanical televisions.

And all this comes on top of the fact that Sprint is also committed to deploying a third network based on WiMax technology.

As at the end of Q3, 3 2007 (the last period for which fully audited and verified figures are available), Sprint had 34.1 million CDMA subscribers and 18.7 million on iDEN. A filing quietly made with the US Securities and Exchange Commission (SEC) shows that during Q3 alone 757,000 iDEN customers left the company.

All this comes as the blood-letting in the Sprint executive suite continues unabated. In December the company hired a new CEO, Daniel Hesse, to replace the ousted Gary Forsee.

In an irony of ironies, Daniel Hesse was recruited from a Sprint spinoff, Embarq Corporation, where he gained a reputation as an axe-man after he tried to staunch losses there by closing call centres, slashing staff numbers and reducing customer care. On appointment to Sprint he immediately announced the cutting of 4,000 jobs and the closure of 125 of the company's Main Street USA stores. Then, last week, the carrier's Head of Sales and the Chief Marketing Officer fell on their swords, to be followed, very shortly afterwards, by the Chief Financial Officer, Paul Saleh.

In the SEC filing Sprint claims the impeding write-off (the exact details of which will be announced on February 28 along with the carrier's latest financial results) "will have no effect on cash balance or future cash flows or result in violating agreements with lenders".

James Fisher, a Sprint spokesman said, "We are sound financially. We have strong cash flows from our operations, good cash liquidity on the balance sheet and about 54 million customers."

That's as maybe, but if the company does go the whole hog and writes-off $31 billion in an effort to clear the financial decks, it will equal the premium (or the entirety of what is laughingly referred to as "the goodwill") Sprint paid for Nextel's assets when the merger/acquisition was signed.

What's more, taking a one-off kill-or-cure dose of financial medicine like that is sure to result in a massive Q4 loss. For the same period in 2006, Sprint posted a profit of $261 million. This year it could write off $31 billion. You do the sums.

Sprint is taking a major gamble and seems to be about to bet the corporate shirt on WiMax. If I held Sprint stocks, I'd be worried. The share price has fallen by 26 per cent over the past twelve months whilst AT&T's has risen by 14 per cent. 'Nuff said?