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Competition cuts into Sprint’s credit rating

Sprint’s fight to win customers is hurting its finances and its credit rating.
Sprint’s fight to win customers is hurting its finances and its credit rating.

Sprint Corp.’s battle to win wireless customers and its “operational missteps” have led Moody’s Investors Service to cut the Overland Park-based company’s credit rating.

Moody’s said in a statement that it also has a negative outlook on Sprint’s future ratings. Competition, it said, is taking its toll on Sprint’s finances.

“Sprint has repeatedly had to lower subscriber, earnings and cash flow guidance” because of “a combination of operational missteps and rapidly intensifying competitive challenges, especially from a recently revitalized T-Mobile US,” Moody’s senior vice president Dennis Saputo said in a statement on the credit rating decision.

Sprint, under new chief executive Marcelo Claure, has been cutting prices and running promotions to reverse subscriber losses that have included 1.8 million of its most valuable customers this year. Reports have suggested the efforts helped entering the holiday shopping season.

For Moody’s, the chances of success are limited and the price of battle high.

“Although Sprint has recently come out with aggressive service pricing plans and new plans to lease select smartphones,” Moody’s said, Verizon, AT&T and T-Mobile are likely to react to protect their subscriber bases.

Moody’s concluded that Sprint’s financial pressures — specifically a “sustained period” of weak earnings that means Sprint will have to spend more cash than it can generate — are forcing it into a greater reliance on debt.

Rising debt loads can make a company’s existing debt riskier because it makes repayment less certain. Issuing more debt also lengthens the line of investors with claims on the company’s ability to pay.

More debt seems likely, Moody’s said, because Sprint needs to spend heavily in a government auction of valuable wireless spectrum set for 2016. Companies use spectrum to carry the data their customers use when downloading apps, watching videos or using other popular features of mobile devices.

Sprint needs the kind of spectrum being auctioned because it carries wireless signals farther and more readily inside buildings than the wireless spectrum Sprint currently has available to improve its network’s performance. Wireless network tests repeatedly rank Sprint last among the four national carriers.

Moody’s said its negative outlook rests on an expectation that Sprint has a “limited ability to reverse current trends in the foreseeable future.”

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com. Follow him on Facebook and Twitter at mdkcstar.

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