Sprint Wobbles Again

Continuing the slide in progress since its merger with Nextel in summer 2005, Sprint Corp. (NYSE: S) forecast late on Monday that its earnings would be hurt in 2007 as it spends to improve its network and ramp up marketing efforts.

At a time when its major rivals Cingular Wireless and Verizon Wireless are seeing double-digit subscriber increases, the Reston, Va.-based carrier added 742,000 net subscribers, most of them in wholesale deals and through the prepaid Boost service aimed at youthful customers. Sprint's post-paid business -- i.e., annual subscribers who pay on a monthly basis -- declined by 306,000 customers.

"While it was a challenging year, we initiated actions to improve our operating performance and enter 2007 with signs of progress underway," said CEO Gary Forsee, who took over the company in 2005, oversaw the Nextel merger, and is under increasing pressure to demonstrate a roadmap for the company that will bring it back to a more competitive position relative to Nos. 1 and 2 carriers, Cingular and Verizon. Forsee said that 2007 full-year results will be "in line with our prior guidance." Sprint shares dropped 11 percent in value in 2006. (See Sprint Nextel Struggles Continue.)

Sprint said it will also cut around 5,000 jobs in the coming months.

The No. 3 U.S. wireless carrier predicted that 2007 revenue will be between $41 billion and $42 billion, slightly below analysts' estimates and essentially flat from 2006. Revenue from calls may actually decline in 2007, and Sprint says it will invest an added $1 billion in expanding its coverage, beefing up marketing efforts and developing new phones. That's on top of the $800 million or so Sprint plans to invest in its planned nationwide WiMax network in the coming year.

UBS Research analyst Levi Batya said in a research note that he expects the carrier to drop another 330,000 postpaid subscribers in the first quarter of 2007, and add only 370,000 for the entire year.

Sprint shares were down $1.96 (9.98%) to $17.68 in early afternoon trading on Tuesday.

— Richard Martin, Senior Editor, Unstrung

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