Sprint’s James Franco moment could end badly

Hesse staring in one of many Sprint "Simply Everything" commercials

Sprint, with its network modernization announcement on last Friday has set the stage for one of two things: another spectacular, Nextel-style failure or a corporate turnaround for the history books. Sprint laid out plans for its LTE network that involve it going alone with the help of an unknown instead of its former 4G partner Clearwire. It will do this with scant spectrum resources as it walks a tightrope with its finances and brings on a data-intensive handset at great cost.

From here, Sprint’s decision to build out an LTE network on its own sparse spectrum, while simultaneously betting big on the iPhone and unlimited data, is kind of like someone chewing off her leg to get out of a bear trap, and then signing up for a marathon the next week.

It’s possible that it could win, but more likely its many challenges that I laid out in a GigaOM Pro report (subscription required) published today, will cause it to disappoint its customers, shareholders and still won’t get it any closer to closing the gap that exists between it and the nation’s top two carriers, AT&T and Verizon. Some of its challenges include:

  • Sprint is betting big on the iPhone, which could cost it more in terms of subsidies and the outlay for the device. This will burn through Sprint’s cash resources, when it is also spending big to build out its LTE network by the end of 2013.
  • A looming debt payment of $2.5 billion in March, plus the cash outlays associated with building out its network make it difficult for Sprint to acquire new spectrum without upsetting shareholders or bondholders. On Monday its debt was placed on Credit Watch by Standard and Poor’s, as an indication of the rating’s agency’s doubt.
  • Despite its bet on the iPhone, Sprint must transition to a 4G network, and do it soon. It will do this by using its PCS spectrum that’s currently allocated to 2G and 3G services. So while it is signing up a bunch of iPhone customers that really like their data on its 3G network, it has a huge incentive to stop pushing 3G so it can reallocate its spectrum for next-generation services.

Sprint is making the only moves it can after making some bad bets in the past. We’ll see if it becomes the kind of underdog success story case studies are written about, or if it continues to falter. For more, check out my GigaOM Pro report.

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