Sprint Nextel withdrew its offer to sell $3 billion of its stock because it wasn't getting "attractive" terms due to the "unfavorable market." That is but one of the wireless carrier's many challenges on several fronts.

While the carrier claims to be on solid financial footing and that it will able to reduce its debt by $1 billion over the course of the third quarter, storm clouds have gathered on various fronts. Verizon Wireless and AT&T have solidified their positions as the top two U.S. carriers, and T-Mobile is stabilized by its international market share, especially in Europe.

"Verizon and AT&T are motoring along at a pretty good pace, and the T-Mobile Q2 numbers were pretty good, not great, but in perspective not as bad as Sprint," said Neil Strother, Kirkland, WA-based analyst for mobile marketing and media at JupiterResearch.

"Not that the U.S. is fully penetrated, but there aren't a lot of new subscribers out there since most people have a mobile phone already, so you're trying to grab people from other carriers, which can be really hard to do," he said.

Forrester Research recently acquired JupiterResearch (see story).

Sprint tried to put an optimistic, although still realistic, spin on its second-quarter results, stressing that it has plenty of liquidity (see story). It is still the third largest carrier in the United States.

However, while Sprint claims to have improved its churn rate, the company lost 901,000 subscribers in the second quarter and its overall revenue dropped 11 percent.

In contrast, the second-quarter reports released by Verizon Wireless (see story) and AT&T (see story) showed growth with no indicators of an imminent slowdown.

"I think that from Sprint's perspective, they're in a tough situation, but at least they're being honest," Mr. Strother said.

"They're not trying to paint an overly rosy picture, and from that standpoint they're facing the music and trying to get through the next couple of quarters," he said.

The competition among U.S. carriers is intense. It is not expected to ease up in the foreseeable future.

"Verizon is a strong player and they've been able to deliver an effective message about good network coverage and offer the right amount of handsets and voice and data services," Mr. Strother said. "As for AT&T, the iPhone gives them a lift across the board, and they also have a good set of services, so they're in a tight race with Verizon.

"Nos. 1 and 2 are duking it out at the top, and with Verizon's acquisition of Alltel, that doesn't leave a lot of room for 3 and 4 to maneuver," he said.

There has been other recent bad news, too.

In a landmark decision on carriers' early-termination fees, a California court ruled against Sprint Nextel Corp., which may have to pay $73 million in damages (see story). Sprint will appeal the decision.

The other major carriers have either reached an out-of-court settlement, lowered their early termination fees or shifted them to a sliding scale.

Another headache is the Nextel division, which runs on the iDEN network and whose core audience is construction crews, firefighters, EMTs and others who rely on its walkie-talkie feature. However, its portion of the company has accounted for most of the lost subscribers.

"Sprint hasn't really worked through how they're going keep the Nextel folks," Mr. Strother said.

"They have two disparate networks still, and their devices are supposed to work on both, but there have been some integration issues and their value proposition hasn't been well received," he said.

There have been rumors circulating that Sprint was looking to sell off Nextel, although the company has denied them.

At one point South Korea's SK Telecom showed some interest in Nextel. The companies considered collaborating, although those talks have appeared to cool.

"It sounds like there were discussions about working together, but SK Telecom said publicly that they weren't interested in buying Sprint Nextel," Mr. Strother said.

"If I were them, I'd be skeptical about that, because foreign investment in U.S. carriers doesn't have a great track record, and their whole experience with Helio might cause them to think twice, especially since there might be government intervention," he said.

"An SK Telecom takeover is not real likely, but investment is possible."

SK Telecom recently sold Helio to Virgin Mobile USA (see story).

While the challenges Sprint Nextel faces are imposing, executives have been battling to turn things around.

"Sprint's CEO has been sending the message of cutting costs, and they're trying as valiantly as they can to keep customers happy and try to grow new ones," Mr. Strother said.

"They have to ask themselves, 'Where are the soft spots in AT&T and Verizon?' and go for those, and that's a hard challenge," he said.

One positive not has been the success of the Samsung Instinct mobile phone, which is on Sprint's network.

"The Instinct is not an iPhone killer, but it has been doing pretty well and that's helpful," Mr. Strother said. "Their WiMAX agreement with Clearwire is promising as well."

WiMAX technology is a high-speed wireless broadband service that Sprint will operate jointly with the Clearwire Corp. It launches this fall.

To challenge the top two carriers, Sprint will have to streamline while continuing to innovate.

"Despite their losses, Sprint still sizeable amount of subscribers, they've been doing some innovative things, and they still own a lot of spectrum space," Mr. Strother said.

"Sprint has also been competing on the price front, but they have no external money or support from a parent like T-Mobile does," he said.

In the end, Sprint will live or die on the services, handsets and data applications it offers.

"How can Sprint rise in marketplace? There's no silver bullet, but they need better marketing and to continue to come out with cooler handsets," Mr. Strother said. "Their dual networks are not well-married, and they have to figure out how to integrate them better."

With open source networks a hot topic, Google's Android platform on the horizon and the Symbian operating system going open source, there may be some opportunities for Sprint to make a leap forward.

"Can they bridge the gap to the future of mobile phones and mobile data?" Mr. Strother said. "Going forward, devices and uses will not be centered just on the voice side, but on mobile Internet access, mobile applications tied to the Internet and services tied to locations.

"How does a carrier like Sprint address open devices and open access to services and move ahead?" he said. "There are no easy answers, but they have to cut costs and try to get lean and mean and innovate."