February 28 2008: 1:53 PM EST
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The unraveling of Sprint

The No. 3 wireless carrier reports heavy losses, launches price war in a desperate bid to turn itself around.

Sprint CEO Dan Hesse is betting on a cheaper data plan to help resuscitate the struggling carrier.

NEW YORK (Fortune) -- Sprint's world of pain puts a sting on rivals AT&T and Verizon.

The No. 3 wireless carrier unveiled a dizzying array of bad news Thursday morning, including a $29.5 billion fourth-quarter loss, the draw down of $2.5 billion from its credit line and, as Fortune.com reported Wednesday, the acceleration of subscriber cancellations to 1.2 million this quarter.

Sprint (S, Fortune 500) shares fell sharply on signs that the company's downward spiral is far from over. Shares have now lost nearly half their value since Dan Hesse, a longtime AT&T executive, took over as CEO in December following a management shakeup.

Looking to slow the customer exodus, Hesse on Thursday upped the ante in a recent industry price war by offering $99-a-month unlimited data and calling plans. Rivals AT&T (T, Fortune 500), Verizon Wireless (VZN) and T-Mobile recently rolled out $99 unlimited calling, but Sprint's plan now includes a buffet of text-messaging, email, and Web surfing, video viewing and GPS navigation features.

The move is unlikely to placate Wall Street. Shortly after Sprint announced its abysmal fourth quarter, credit rating agency Fitch lowered the telco's rating a notch, to junk with a negative outlook.

Some analysts and industry observers are calling for a company breakup, two years after it acquired Nextel in a deal now widely seen as a failure. Sprint's fourth-quarter included a massive $29.7 billion charge related to the Nextel buyout.

The most likely split-up option would be for Sprint to sell its costly WiMax effort. Sprint has been in talks with WiMax service provider Clearwire (CLWR) to form a joint venture with a cash infusion from outfits like Intel (INTC, Fortune 500).

The timing of Sprint's nose-dive isn't good. If the company decided to spin off divisions like its business services unit or its iDEN Nextel network, few bidders could secure the necessary financing given the broader credit crunch on Wall Street. "Sprint is stuck in a box," says one money manager. "They don't have all that many options at this point."

Hesse told analysts during a conference call Thursday that the company is exploring "alternatives." He didn't elaborate.

But Hesse is clearly optimistic that the new data plan, which undercuts other carriers' unlimited data offers by about $20, will help revive the company. "Data will be the new battle ground," said Hesse. "We are putting a flag clearly in the ground in the data world."

Sprint hopes it can keep its heavy users and lure big spending customers away from competitors. But the unlimited pricing move is controversial since capping monthly phone bills that often exceed $100 a month could cut revenues. Sprint is betting that revenues losses will be offset by an influx of new customers. To top of page

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