Sprint Nextel Corp signaled that it could spend more money than it brings in over the next few years, even without accounting for the high costs of selling the Apple Inc iPhone, sending its shares down 13 percent.
The No. 3 U.S. mobile phone service, which outlined a plan to spend $7 billion on a network upgrade, refused to address the cost of selling Apple Inc's iPhone in presentations at an investor conference on Friday.
Sprint said it would pay for the network upgrade with cash from its balance sheet and by raising capital. It did not provide details.
They're going to be spending more money than they're bringing in for the next couple of years... even before iPhone costs, Hudson Square analyst Todd Rethemeier said.
Sprint also faced analyst questions about its liquidity expectations while it invests in the network.
Analysts also asked several times about its plans for wireless telecommunications network operator Clearwire, which is majority owned by Sprint.
Some asked if it would let Clearwire go bankrupt. Chief Executive Dan Hesse said that if it does go bankrupt, Sprint would expect to be part of the process.
Clearwire shares fell 32 percent to $1.39. The shares started to fall after Sprint said that it hopes to use spectrum from Clearwire rival LightSquared to bolster its network capacity.
Joan Lappin of Gramercy Capital Management angrily asked executives why Sprint was committing to spend billions of dollars on upgrading its network while Clearwire, which has much more spectrum than Sprint, faces a massive shortfall in funding.
The question was followed by loud clapping and cheering among the analyst and investor attendees.
Sprint, whose shares fell to $2.63, started taking orders for the iPhone on Friday. It said the phone would be more expensive than others.
Hesse also said the device would be quite accretive to its profits over time.
Sprint said it plans to upgrade its high-speed wireless services network faster than it previously expected, leading analysts to question how the company would pay for the upgrade along with its commitment to carry the iPhone.
Seeing all these balls in the air is a little scary, said Evercore analyst Jonathan Schildkraut.
LightSquared, which is backed by hedge fund manager Phil Falcone, needs regulatory approval to build a network using the spectrum Sprint hopes to use.
Sprint said it will launch its high-speed service by the middle of 2012 and expects to complete its upgrade by the end of 2013. It had talked about a five-year plan for upgrading its network when it first discussed the project in December.
The company still expects its network upgrade to save about $11 billion, mostly through closing its older iDen network.
Sprint said its network upgrade would help boost its margin from operating income before depreciation and amortization by 4 percent to 6 percent from current levels by 2014.
It promised another parallel 4 to 6 percent boost in margins from improving its core operations in the same timeframe.
But analysts questioned whether investors would see any boost in profitability because of the steep spending plans.
Bernstein Research analyst Craig Moffett worried that Sprint could have problems with its service while it sets aside spectrum for the network upgrade.
It is not clear how the company would avoid creating a capacity gap when there will be big demands on the network, he said, particularly from users of the iPhone.
Sprint plans to upgrade its network using Long Term Evolution, the same high-speed wireless technology used by its two bigger rivals, AT&T Inc and Verizon Wireless, a venture of Verizon Communications Inc and Vodafone Group Plc.
(Additional reporting by Liana B. Baker, Editing by Gerald E. McCormick, Robert MacMillan)