Never doubt the Troll

Well, if you have been following the Troll, this article should not have caught you by surprise. Unbelievably, there are corporate shills such as Hyde who like to give their little elevator speeches while the rest of us have a good chuckle. To put things in perspective, S stock is down 70% since beginning of 2008, when Hesse and his minions took over. In the same timeframe ATT has remained steady, Verizon has dropped about 18%, and T-Mobile and the regional players have posted respectable results. Simply put, if you had invested 100k in Sprint at the beginning of 2008, you would have 30k left…and that’s after the stellar results for 2009 that Hyde reported in previous posts. If you had invested in ATT you would still have all your money and a little left over. You’re odds are better investing with Bernie Madoff than following the wisdom of Hyde.

Still talking about numbers, what is even more perplexing are the subscriber figures for 2008. Verizon- plus 5.9 million; ATT plus 6.7 million; T-Mobile plus 3 million; and Sprint- MINUS 5.1 million. The regional carriers also posted healthy gains. Sprint was the only carrier to report negative net ads…and it wasn’t even close.

With another negative 1.3 million net ads expected this quarter (compared to minus 1.1 million from last year), things certainly don’t seem to be improving for 2009. To put it in perspective, Sprint is expected to have a 6% lower operating revenue for 2009 based solely on subscriber numbers for year ending 2008, amounting in a revenue decrease of $2.1 billion. This means if S maintains its existing subscriber base and ARPU for 2009, revenues will still decrease by $2.1 billion. Assuming Sprint loses a total of 3.5 million subscribers in 2009 (a conservative figure considering they have already lost 1.3 million), the resulting loss in revenue would be approx $1.2 billion (since subscribers are lost throughout the year, an average of 1.75 million subscribers x 56 ARPU x 12 months was used to calculate this figure). These are conservative estimates. Assuming more downward pressure on ARPU, a likely scenario given S price cutting measures and service credits, you can add another $40 million in lost revenue for each dollar decline in ARPU. In all, a $3.5 billion decline in operating revenues for 2009 is more than likely.
Moreover, larger phone and equipment subsidies, higher advertising expenses, and an approx $2 billion dollar debt payment will put additional downward pressure on obitda. Reduced labor expense will result in a savings of about $500 million.

S will also take a $300 million impairment charge due to the layoffs and additional impairment charges resulting from the sharp decline in Clearwire stock, of which Sprint holds a book value of almost $8 billion.

It’s hard to know what the cash position will be at the end of 2009, although it’s safe to say that it ain’t going to be good. Anyone hoping the Pre will make inroads into Sprint’s plight, the Troll has bad news for you as well. It is likely the Pre will attract some early adopters and maintain some existing customers. Nevertheless, word on the street is that the new OS is buggy. That’s not to denigrate the Pre. All new OS’s are deficient…iPhone, Android and others certainly had their problems. Nevertheless, in the rush to get the Pre out, Palm is treating the Sprint release almost as a beta test. This will bring bad publicity for Sprint. By the time the issues are rectified, Verizon will jump in and pick up the pieces. The Troll is not sure when S exclusivity ends with the Pre, but if it is before Christmas 2009, you can pretty much say bye bye to Sprint in 2010.
Surely 2010 must look better than 2009. Not a chance. Without going into specifics, the negative net ads from 2009 will result in further deterioration of operating revenues. The effect of the Pre will be marginalized by Verizon. The iPCS lawsuit will result in large declines in subscriptions or a hefty cash settlement. The acquisition of poor credit customers will come home to roost. And finally a $3.7 billion debt payment (and possibly more) will come due. A bankruptcy or fire sale is imminent. Sprint will not exist much beyond 2010.

It would be easy to blame Sprint’s demise on poor technology or the effects of a recession wiping away needless inefficiencies of a declining industry. But that is not the case. Sprint has good technology and, as evidenced by other carrier’s subscriber additions, the wireless business is a growing industry.

Sprint failed because of a leadership void. It is what happens when you have astronomical “performance bonuses” being paid to top executives with “unique skills”; an illegitimate $4 million severance to Kathy Walker; a $1 million incentive bonus to K Cowan for failing to complete his task; a CFO who flies himself and his family around the country at a price of 600k while preaching the virtues of frugality; hiring foreign H1B workers during periods of mass layoffs; electing an over the hill greetings card pinhead to the BOD; paying a $40 million golden parachute to a failed CEO; and an advertising campaign showing a 50-something, narcissistic, pocked-face CEO telling youngsters how neat a cell phone is at a time when politicians, commentators, and the rest of the world are railing against high-paid execs. These may seem like petty issues in the overall scheme of things. But they are indicative of a cancer that has infected Sprint and has spread to all levels of its ranks.
the Troll