Sprint iPhone 2011: Sprint in Need of New Financing After $15.5B Apple Contract

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By Allison Summers, Christian Post Reporter
October 28, 2011|2:33 pm

Sprint recently said it would need $7 billion in new financing agreements to cover a $15.5 billion contract signed with Apple for the next four years for the iPhone.

The company is "seeking $3 billion of the additional funds from vendor deals and an additional $4 billion in refinanced debt," according to Bgr.com, to compensate for the subsidy fee it pays Apple to sell its product, which is 40 percent larger than the fee it pays for any other phone.

"If we want to maintain a cash balance as high as $2 billion minimum at any point in time, we would want to extend the maturities of $4 billion that come due in 2012 and 2013 and raise between $1 billion to $3 billion, primarily from vendor financing," Chief Executive Dan Hesse told Reuters on Wednesday.

Although Sprint may be strapped for cash now, the company believes that its investment in Apple is worth its current financial troubles because the iPhone has been one of the carrier's fastest selling products, and the sales are only expected to increase.

Though the Apple contract will cost Sprint $15.5 billion over the next four years, the company said it will increase the future value of the company anywhere from $7 to $8 billion over that time period.

Hesse reportedly said that the contract is "worth every penny."

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Bgr.com recently reported that Sprint is negotiating a network-sharing contract that will last beyond 2012 and that "CEO Dan Hesse explained on a conference call that Sprint could take advantage of Clearwire's network in an effort to balance traffic on its planned 4G LTE network," but the deal is not yet definite.

However, some analysts feel that Sprint may be trying to handle too many ventures at once, putting the company in significant risk.

"They're betting the house on two things at the same time," Mizuho analyst Michael Nelson told Reuters. "If they pull it off, great. If they don't, their financial performance would get materially worse, and they could have significant liquidity risks."

 

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