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Sprint: Profits Up, Subs Stall

Dan Jones
2/28/2007

Slightly brightening a dismal year, Sprint Corp. (NYSE: S) this morning reported that its net profit grew 32 percent in the last quarter of 2006. But the company says that it is still having trouble keeping some of its most valuable wireless customers -- a situation it expects to turn around by the middle of 2007. Reston, Va.-based Sprint, which is the third-largest cellular operator in the U.S., said fourth quarter net income climbed to $261 million from $195 million in the same quarter a year earlier. Net income for the third quarter of 2006 was $247 million.

Revenues rose 7 percent to $10.4 billion from $9.8 billion 12 months ago. The company reported revenue of $10.5 billion in the previous quarter of 2006. Wireless now represents around 85 percent of the company's business, at $9 billion in revenue for the quarter. (See Sprint Nextel Struggles Continue.)

These results largely track with analyst estimates following Sprint's downward revisions this January. "We still have work to do," CEO Gary Forsee said of the overall results on this morning's earnings call.

One area that the company is eager to turn around is its "postpaid" user numbers. These monthly subscribers are generally the most profitable customer base for wireless operators.

Sprint said in January that it lost 306,000 postpaid subscribers for the quarter even as it added 742,000 net customers overall. Sprint's closest rival Verizon Wireless added over 2 million new subs in the same timeframe. (See Sprint Wobbles Again.)

The company's CFO, Paul Saleh, expects the losses to continue into the first quarter of 2007 but is predicting improvements after that. Postpaid adds, he says, will be "positive in the second quarter and ramp through the year."

Nonetheless the company's guidance is that overall revenue for 2007 will essentially be flat at $41 billion to $42 billion for the year.

In fact, much of the operator's focus now appears to be on late 2007 and 2008. Forsee spent a significant chunk of the earnings call looking ahead to the launch of the firm's WiMax network in 2008 and the addition of more capabilities to allow its customers to move between existing CDMA and iDEN networks.

Sprint says that it will spend up to $800 million on WiMax in 2007 and hinted that it may look for additional investment from existing or new partners in the project. Forsee said that the firm has had "significant interest" from "existing partners" and other networking players that "would also like to get a return from making an investment." He also said that there was potential to get some of Sprint's cable partners involved.

Sprint is now working with LG Electronics Inc. (London: LGLD; Korea: 6657.KS) as well as Intel Corp. (Nasdaq: INTC), Motorola Inc. (NYSE: MOT), Nokia Corp. (NYSE: NOK), and Samsung Corp. on the WiMax project. Forsee says that company is happy with the progress and still expects initial networks to be in place in late 2007 with commercial services launching in 2008.

LG has signed on to provide "multimedia devices" for the new network. Nokia is also developing similar gadgets as well as providing infrastructure support for the network. Motorola is working on chipsets, devices, and networking equipment. Intel has committed to a dual-mode chipset that supports both WiFi and WiMax. "Samsung has committed to six compatible devices and plans to enter the chipset market itself," Forsee noted.

In the nearer term, Sprint is hoping to win back some of its old Nextel customers with dual-mode "Powersource" CDMA-iDen handsets. It started to seed the market with these gizmos late in 2007 and is predicting that it will shift millions this year.

Its all part of a plan to move customers onto faster CDMA networks while retaining the push-to-talk walkie-talkie-style functionality that Nextel users still want. The hope is that such moves will increase its data revenues further. The company sees nearly $12 a month in average revenues per user from data downloads on its faster CDMA networks -- some of the best numbers in the industry -- but that drops to $8.75 derived from data across all its networks.

— Dan Jones, Site Editor, Unstrung

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