Sprint's Struggle Continues in Q2

Today Sprint Corp. (NYSE: S) posted a larger second-quarter loss than expected, but the carrier at least slowed the rate at which monthly wireless subscribers are leaving its books.

Even so, subscribers are still leaving.

The third-ranked cellular operator in the U.S. reported a loss of 257,000 customers in the second quarter of 2009. This is pretty dismal compared to AT&T Inc. (NYSE: T)'s addition of 1.4 million subscribers during the quarter, or the 1.1 million new users on Verizon Wireless 's books. (See Verizon Lags AT&T in Q2 Subs Game.)

For Sprint, however, it's an improvement in the stream of "high-value" monthly subscribers leaving its CDMA and iDEN networks. That's because those 257,000 losses include a net loss of 991,000 monthly subscribers this quarter, compared to the 1.25 million so-called "post-paid" users who dropped out in the previous quarter. (The second-quarter numbers are offset by a net gain in prepaid customers.)

The resulting declines in monthly wireless subscriber payments led to a drop in revenues, Sprint said on its earnings call today.

Table 1: Sprint Q2 Earnings
2Q08 2Q09 Change
Revenues ($B) 9.05 8.12 -10%
Net Income ($B) -0.344 -0.388 +13%
EPS ($ GAAP) -0.12 -0.13 +8%
Source: Sprint Nextel

Sprint's non-GAAP losses per share for the quarter were 2 cents, matching analysts' expectations according to Thomson Reuters .

Palm Pre-view
On the earnings call, Sprint CEO Dan Hesse noted that the newly launched Palm Inc. Pre had helped Sprint keep some customers on its networks, although he didn't give exact sales figures.

The phone is clearly an asset for struggling Sprint, which eventually intends to launch the device into the wider retail world outside of its own stores. "We're the exclusive provider until 2010," Hesse declared on the call.

Verizon recently said that it expects to launch the Pre on its CDMA network early in 2010.

Churn focus
Continuing to reduce customer defections to other networks, a.k.a. churn, was one of Hesse's main focuses on today's call. Sprint's churn rose to 2.05 percent compared with 1.98 percent a year ago, although that is down from the 2.25 percent rate in the first three months of 2009. By comparison, AT&T just reported a churn rate of 1.09 percent for the quarter, its best-ever level of customer (non-) defections.

"The overall issue for us is reducing churn and we're very, very focused on that," Hesse said. For the CEO this will mean having "more customers coming in and more customers on contract."

Virgin gets a Boost
Meanwhile, Sprint added 938,000 new pay-as-you-go customers via its Boost Mobile subsidiary during the quarter. One attraction was the new $50 a month Boost unlimited voice and data plan, Hesse said.

The success of Boost helps explain Sprint's planned $483 million acquisition of Virgin Mobile USA Inc. (NYSE: VM), even if the company itself isn't saying much about strategy until the deal closes. Virgin will give Sprint a second pre-paid brand to work with, this one highly focused on the youth market. (See Sprint to Buy Virgin Mobile.)

"Two brands are clearly better than one," Hesse quipped on the call.

4G, or not 4G
Sprint also talked up its "4G Now" marketing on the call -- even if the underlying mobile WiMax network from Clearwire LLC (Nasdaq: CLWR) that Sprint is using for the service doesn't actually meet the definition of a true fourth-generation network. (See Sprint: How Soon Is '4G Now'?) "We think 4G will be a very significant differentiator for Sprint going forward," Hesse said. He promises "4G" launches outside Baltimore "by the end of summer" and "a bunch more in 2010."

Sprint's wholesale WiMax plan will get competition from Verizon's Long-Term Evolution (LTE) network launch in 2010. [Ed. note: LTE isn't really "4G" either; don't believe the hype!]

Predictions & stocks
Despite the wider-than-expected loss, Sprint is sticking to its guns about subscriber trends in 2009, saying than overall numbers will be better than the previous year.

Nonetheless, investors spanked Sprint for today's reported loss. The operator lost nearly 10 percent on its shares in morning trading, with its stock falling by 44 cents to $4.15.

— Dan Jones, Site Editor, Unstrung

4Gconsultant 12/5/2012 | 3:59:39 PM
re: Sprint's Struggle Continues in Q2

My be this is very innocent comment. I don't really understand why Sprint can't go with LTE? Why do they need to seprate themselves from other providers.

joset01 12/5/2012 | 3:59:38 PM
re: Sprint's Struggle Continues in Q2 Sprint doesn't have the spectrum to deploy LTE right now because they gave Clearwire Sprint's 2.4GHz licenses as part of the "new" Clearwire deal. Thus they don't have the radio space to deploy LTE right now.
RussLarson 12/5/2012 | 3:59:17 PM
re: Sprint's Struggle Continues in Q2

In the end, WiMax will be a strategic mistake for Sprint.  Perhaps if the WiMax opportunity came along in a world where they had not acquired Nextel, it might have worked (i.e., they would have had the clout and resources).  But that's not the reality, and this extremely risky move by Sprint has a low probability of succeeding.  Given their current viability, such a risk might force even more drastic change at the company.   Sprint should have dumped Nextel awhile ago (as others have pointed out), figured out why customers were defecting and corrected that situation (read Consumer Reports wireless carrier rankings for the past five years) before jumping in as the lone carrier on Intel's bleeding dream.  Don't misconstrue: innovation and alternatives are a good thing but partnerships behind WiMax aren't going to make a viable marketplace.  In the end, the competitive innovation will just help LTE be a better solution (hopefully).

WiMax probably won't make it because corporations will not adopt it (corporations were the initial customers of EVDO modems).  Corporations will wait for LTE from Verizon and AT&T and this in turn will inevitably force Sprint to switch at some point.



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