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Sprint Nextel Revenues Up, Profits Down

Carmen Nobel
News Analysis
Carmen Nobel
4/26/2006

Sprint Corp. (NYSE: S) on Wednesday reported a general increase in operating revenues but acquisitions costs took a bite out of its net profits for its first quarter of 2006.

For the period ending March 31, the third-largest wireless service provider in the U.S. reported net earnings of $419 million, compared with $472 million during the year-ago period. Integration costs related to the merger were $105 million, officials said.

Operating revenue was up 66 percent, $11.5 billion compared with $6.9 billion in the year-ago quarter. Pro forma operating revenue (which pretends the Sprint Nextel merger had happened in the beginning of 2005) was up 9 percent, from $10.5 billion.

On the wireless side, Sprint Nextel reported pro forma net operating revenues of $8.52 billion, compared with $7.52 billion a year ago. The company reported 1.3 million new wireless customers for the first quarter, 20 percent of which came from MVNOs and affiliates. Of these, 563,000 were customers who pay monthly bills, 502,000 were pay-as-you-go customers under the Boost Mobile brand, and 273,000 were wholesale customers.

Sprint's average monthly revenue per user (ARPU) was $62 for post-paid customers, down 3 percent from the same quarter a year ago; $7 of that was for data services, a 54 percent increase from last year. ARPU for pre-paid customers in the quarter was $36. Post-paid churn for the quarter was 2.1 percent, meaning this was the percentage of customers who switched to other carriers during the quarter. Churn among Boost customers was 5.4 percent.

"Sprint has been an aggressive price discounter, so it’s no surprise if their ARPU is down, leading to lower earnings," says Phil Redman, a research VP at Gartner Inc. .

Cingular Wireless , the biggest wireless carrier in the U.S., last week reported 1.7 million new subscribers. (See Cingular Churns Out Profit in Q1.) Verizon Wireless earnings for the quarter have not yet been released.

Sprint Nextel attributed its lower revenues to the recent acquisition of several affiliates, following the merger. (See Sprint Scoops Up UbiquiTel.) Furthermore, marketing expenses were higher than usual in the first quarter because of money the company threw into Super Bowl advertising.

For the future, the company said it is on track to cover 190 million points of presence with its wireless broadband service by the end of 2006, and 220 million by the third quarter of 2007. It also plans to start rolling out the next generation of wireless broadband -- EVDO rev. A -- in 2007. Meanwhile, the company is on track to close 170 retail stores by the end of 2006, which should cut down on operating costs, officials said.

In long distance services, net operating revenue was down 3 percent -- $1.67 billion compared with $1.72 billion in the year-ago quarter. Officials attributed this mostly to a 39 percent drop in consumer voice revenues.

"These [numbers] are indicative of recent trends as more customers go to bundles… many of which are offered by the cable companies," said Len Lauer, chief operating officer of Sprint Nextel, during an earnings call with analysts.

For local services, net operating revenue was $1.62 billion, up slightly from about $1.6 billion in the year-ago quarter. Sprint Nextel plans to jettison that unit, which will operate as a new company called Embarq. (See EMBARQ!.)

"We remain on track to complete the spinoff next month," said Sprint-Nextel CEO Gary Forsee, on the call.

— Carmen Nobel, Senior Editor, Light Reading

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