According to Businessweek, telecom could get squeezed by the credit crunch - and Sprint could get hurt the most."To start with, rising capital costs are likely to take a bite out of earnings. In addition, the softening economy will probably crimp demand for such telecom services as land lines, cell phones, and Internet connections."
AT&T sounded the first warning signal in late September, when CEO Randall Stephenson said the telecom giant was unable to sell commercial paper for terms longer than overnight. AT"T is the industry's biggest user of commercial paper, with about $8.5 billion in paper outstanding at the end of June.
Although Verizon is not a big player in the commercial paper market, it does have $7 billion of debt coming up for renewal in 2009. The company also needs to borrow another $22 billion to pay for its acquisition of wireless carrier Alltel Wireless....
Sprint is the most leveraged carrier. It holds a junk bond rating and its ratio of debt to earnings before interest, taxes, depreciation, and amortization (or EBITDA) is expected to reach 3.2, Bernstein's Moffett says.
And again, these companies building out 3G and 4G networks with massive backhauls at a huge cost while revenues are dipping. How does that math work?