Sprint - Nextel 2012 Annual Report Download - page 22

Table of Contents
successfully complete the development and rollout of new technology and related features or services in a timely manner, and they may not be widely
accepted by Sprint's subscribers or may not be profitable, in which case Sprint could not recover its investment in the technology. Deployment of
technology supporting new service offerings may also adversely affect the performance or reliability of Sprint's networks with respect to both the new
and existing services and may require us to take action like curtailing new subscribers in certain markets. Any resulting subscriber dissatisfaction
could affect Sprint's ability to retain subscribers and have an adverse effect on its results of operations and growth prospects.
Sprint has expended significant resources and made substantial investments to deploy a 4G mobile broadband network through its equity
method investment in Clearwire using WiMAX technology. As part of Network Vision, Sprint expects to continue to support WiMAX devices, as it
fully transitions to LTE. The failure to successfully design, build and deploy Sprint's LTE network, or a loss of or inability to access Clearwire's
spectrum could increase subscriber losses, increase Sprint's costs of providing services or increase Sprint's churn. Other competing technologies may
have advantages over Sprint's current or planned technology and operators of other networks based on those competing technologies may be able to
deploy these alternative technologies at a lower cost and more quickly than the cost and speed with which Clearwire provides 4G MVNO services to
Sprint or with which it deploys Sprint's LTE network, which may allow those operators to compete more effectively or may require Sprint and Clearwire
to deploy additional technologies. See “
- Risks Relating to Clearwire” below for additional risks related to Clearwire.
Current economic and market conditions, Sprint's recent financial performance, its high debt levels, and its debt ratings could negatively impact
its access to the capital markets resulting in less growth than planned or failure to satisfy financial covenants under Sprint's existing debt
agreements.
Sprint may incur additional debt in the future for a variety of reasons, such as refinancing, Network Vision and working capital needs,
including equipment net subsidies, future investments or acquisitions. Sprint's ability to arrange additional financing will depend on, among other
factors, current economic and market conditions, its financial performance, its high debt levels, and its debt ratings. Some of these factors are beyond
Sprint's control, and Sprint may not be able to arrange additional financing on terms acceptable to it or at all. Failure to obtain suitable financing when
needed could, among other things, result in Sprint's inability to continue to expand its businesses and meet competitive challenges, including
implementation of Network Vision on Sprint's current timeline.
The continued instability in the global financial markets has resulted in periodic volatility in the credit, equity and fixed income markets.
This volatility could limit Sprint's access to the credit markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on
terms that are acceptable to it, or at all.
Sprint has incurred substantial amounts of indebtedness to finance operations and other general corporate purposes. At December 31,
2012, Sprint's total debt was approximately
$24.3 billion . As a result, Sprint is highly leveraged and will continue to be highly leveraged. Accordingly,
Sprint's debt service requirements are significant in relation to its revenues and cash flow. This leverage exposes it to risk in the event of downturns in
Sprint's businesses (whether through competitive pressures or otherwise), in its industry or in the economy generally, and may impair Sprint's
operating flexibility and its ability to compete effectively, particularly with respect to competitors that are less leveraged.
The debt ratings for Sprint's outstanding notes are currently below the “investment grade” category, which results in higher borrowing
costs than investment grade debt as well as reduced marketability of Sprint's debt. Sprint's debt ratings could be further downgraded for various
reasons, including if it incurs significant additional indebtedness including indebtedness relating to any required change of control offer, or if it does
not generate sufficient cash from its operations, which would likely increase Sprint's future borrowing costs and could adversely affect Sprint's ability
to obtain additional capital.
Sprint's new $2.8 billion unsecured revolving credit facility, which expires in February 2018, requires that the ratio (Leverage Ratio) of total
indebtedness to trailing four quarters earnings before interest, taxes, depreciation and amortization and other non
- recurring items, as defined by the
credit facility (adjusted EBITDA), not exceed 6.25 to 1.0 through June 30, 2014. Subsequent to June 30, 2014 the Leverage Ratio declines on a
scheduled basis, as determined by the credit agreement, until the ratio becomes fixed at 4.0 to 1.0 for the fiscal quarter ended December 31, 2016 and
each fiscal quarter ending thereafter. If Sprint does not continue to satisfy this required ratio, it will be in default under its new revolving credit facility,
which would trigger defaults under Sprint's
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