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Announcement:

Moody's says Sprint's upgrade plan, while mildly positive, does not address broader strategic gaps

16 Dec 2010

New York, December 16, 2010 -- Sprint's $5 billion plan to upgrade its wireless network, announced Dec. 6, 2010 will result in significant cost savings over the next five years. But the planned investment does not address Sprint's already sizable, and possibly growing, investment in Clearwire. The lack of a unified long term plan, specifically regarding Sprint's 4G roadmap, reinforces Moody's concerns regarding Sprint's future credit profile. Sprint remains on review for possible downgrade based on the uncertainty surrounding its relationship with Clearwire and the strategic issues highlighted below.

The upgrade plan, according to Sprint's estimates, will require incremental spending of $4-$5 billion over the next three to five years to improve service quality and reduce costs in an initiative called "Network Vision." The company expects the project to generate net savings of $10-$11 billion over a seven-year timeframe, most of it occurring after 2013.

Sprint plans to achieve the cost savings in three ways. First, Sprint will eliminate the redundant network costs of operating both the Sprint CDMA and the Nextel iDEN networks. The company estimates that 40% of the projected savings will come from phasing out the iDEN network. Second, improvements in network coverage and stronger signal propagation will result in lower roaming fees for Sprint. Sprint's current service is prone to being crowded-out by stronger signals from competing carriers. Sprint incurs roaming fees for this usage, even though the subscriber is within Sprint's coverage area. Third, the new equipment will also allow for significant savings on backhaul and power expenditures.

Moody's believes Sprint may not have to spend as much on handset subsidies to attract customers, if it can further improve service quality. We estimate that Sprint's average handset subsidy is among the highest in the industry, an amount almost twice that of Verizon, which Moody's views as having the highest perceived network quality. We believe that carriers with higher perceived network quality are able to offer lower handset subsidies and still attract customers.

Clearly, the projected cost savings are compelling and could result in much stronger credit metrics for Sprint. But the announcement leaves many key questions unanswered regarding Sprint's future network strategy, which is now following two paths.

Sprint's Network Vision announcement occurred one business day after Clearwire's public debt offering. We believe that having failed to secure equity financing from Sprint, Clearwire chose an independent path, shut down its expansion effort to conserve cash and tapped the debt market for high-cost capital. Sprint's announcement and subsequent conference call were silent regarding the coordination of its upgrade plan with Clearwire's network expansion. Moody's believes that there are significant opportunities for capital and expense savings if the two companies work together on network deployment.

While Sprint and Clearwire are deeply linked in economic terms, operationally and strategically they remain far apart. Moody's views the parallel efforts of Sprint's $5 billion Network Vision and Clearwire's build-out (which Moody's estimates could cost up to $5 billion more to cover the entire U.S.) as inefficient. Pursuing separate paths threatens to destroy significant value and does not maximize the economic potential of Clearwire's highly valuable spectrum assets or Sprint's strong brand.

Moody's views Sprint's Network Vision announcement as a mild positive, but is concerned that this plan will not lead to a unified long term network road map with Clearwire, a key factor weighing on Sprint's ratings.

The principal methodology used in rating Sprint was Moody's Global Telecommunications Industry, published in December 2007 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Moody's most recent rating action for Sprint was on November 15, 2010 when Moody's placed Sprint's ratings on review for possible downgrade.

Sprint Nextel Corporation, with headquarters in Overland Park, Kansas, is one of the largest telecommunications companies in the United States. It offers digital wireless services under the Sprint master brand name in addition to a broad suite of wireline communication services. The Company operates two wireless networks, one based on CDMA technology and the other over the former Nextel Communication's iDEN network. As of 9/30/2010, Sprint Nextel had 44.7 million wireless customers, including wholesale and affiliate subscribers. The Company generated $32 billion in revenues for the last four quarters ending 9/30/2010.

New York
Dennis Saputo
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
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JOURNALISTS: 212-553-0376
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Moody's says Sprint's upgrade plan, while mildly positive, does not address broader strategic gaps
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