The many problems facing Sprint Nextel Corp. (NYSE: S) are nearly enough to sink the company without any more help.  A shrinking subscriber base, an expensive network upgrade, operating losses, and junk-rated debt.

The Wall Street Journal is reporting that the company’s new deal with Apple Inc. (NASDAQ: AAPL) is an all-in bet that could send Sprint straight into oblivion.  According to the WSJ, Sprint has agreed to buy at least 30.5 million Apple iPhones over the next four years and would have to subsidize customers to the tune of about $500/phone in order to compete with AT&T (NYSE: T) and Verizon Wireless, a joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone plc (NASDAQ: VOD).

Sprint would need to either double its subscriber numbers or switch every customer it now has to an iPhone or figure out some combination of both in order to sell that many iPhones. But Sprint CEO, Dan Hesse, has blamed the lack of an iPhone as the main reason why customers depart Sprint for AT&T or Verizon Wireless.

That may be true, but paying more money than the company can afford to rope those customers in simply doesn’t look like a reasonable way to attack the problem. Of course even the usual $400 or so subsidy that AT&T or Verizon Wireless pays might be too steep a price for Sprint. The thinking must have followed the line of, “What have we got to lose?”

Sprint could make this work if it gets about a third of iPhone sales from its two competitors. The company offers highly ranked services and it is very likely to offer an unlimited data plan to go along with the iPhone. But unlimited data is also going to cost the company money and could potentially cause it to lose its high service ratings if the company can’t keep up with demand for bandwidth.

The WSJ cites an unnamed person familiar with the deal as saying that Sprint expects to lose about $1.5 billion in operating profit through 2013. Sales of the iPhone are not expected to be profitable until 2014. And that prediction comes true only if the iPhone remains the gold standard of smartphones.

In order for this deal to work for Sprint, even over the four-year time span, everything has to go right. Any flub along the way and the company could end up on the ash heap of history. And remember, this is the company that paid $36 billion for Nextel in 2005 and now has a market cap of around $8.5 billion. Neither Sprint’s judgment nor its execution forecast a happy ending to this latest deal.

While Hesse and the Sprint board appear willing to bet the company on the iPhone, investors have taken a dimmer view. Sprint shares posted a new 52-week low this afternoon at $2.75. The stock has come back a bit, at $2.84 about a half-hour before closing. The 52-week high is $6.45.

Paul Ausick

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