Sprint Nextel Corp. (S) declined the most in three months after Sanford C. Bernstein downgraded the company to underperform amid concern it won’t sell enough iPhones to afford its “punishing” commitment with Apple Inc. (AAPL)

The high costs of network upgrades, a “stupendous debt burden” and a “hobbled 4G offering” that may be insufficient to sell millions of iPhones this year, are some of the challenges faced by the nation’s third-largest wireless operator, analyst Craig Moffett wrote in a research note today. Sprint plans to have long-term-evolution or LTE service in 6 cities by the middle of this year. Moffett had previously rated the shares market perform.

The Overland, Kansas-based carrier fell 4.5 percent to $2.76 at the close in New York, for the steepest one-day percentage decline since Dec. 14. The stock was the worst performer in the Standard & Poor’s 500 Index.

Last year, in a bid to stay competitive with iPhone-selling rivals, Sprint Chief Executive Officer Dan Hesse committed the company to a $15.5 billion four-year agreement with Apple to sell 25 million to 30 million iPhones. The move, said Hesse, was to stem the loss of customers to AT&T Inc. and Verizon Wireless.

“Looming in the not-so-distant distance is a collision between an LTE iPhone that presumably won’t work on Sprint’s network and a punishing take-or-pay deal with Apple,” Moffett wrote.

Sprint sold 1.8 million iPhones last quarter, fewer than some analysts projected and trailing larger rivals AT&T Inc. (T) and Verizon Wireless. In 2011, Sprint missed the contract subscriber growth target set by Hesse.

Scott Sloat, a Sprint spokesman, declined to comment in an e-mail.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net