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Apr. 29, 2010

"Driven by the best year-over-year improvement in post-paid gross subscriber additions and the highest prepaid gross subscriber additions in five years, Sprint Nextel achieved the best total company net subscriber results since the third quarter of 2007," according to the company's latest quarterly earnings report.

However, the wireless carrier lost 75,000 customers in the quarter. Sprint Nextel now counts 48.1 million customers on its network, comprised of 33.4 million postpaid subscribers, 11 million prepaid subscribers and 3.6 million wholesale and affiliate customers.

Sprint lost 578,000 post-paid customers, but actually gained 348,000 prepaid customers and managed to get another 155,000 wholesale and affiliate subscribers.

Last week, AT&T Wireless and Verizon Wireless reported Q1 results. Both carriers had drops in the number of postpaid wireless net additions.

Overall, net operating revenues totaled $8 million, down 2 percent from the year-ago period for a net loss of $865 million. The net loss is significantly worse than the $594 million reported in Q1 2009, in part due to a $365 million noncash expense related to deferred tax charges.

Sprint Nextel spent $419 million on capital expenses in the quarter and is on track to spend up to $2 billion for 2010.

Postpaid churn stood at almost 2.17 percent, better than the 2.25 percent from the year-ago quarter. Furthermore, churn rates in the first quarter of this year would have been 2.12 percent, but the wireless carrier began deactivating former Helio customers.

Prepaid churn also improved from Q1 2009 to Q1 2010, from 6.85 percent to 5.76 percent. Sprint attributes the improved churn numbers to including Virgin Mobile customers, who typically churn less than Boost Mobile customers.

Sprint CEO Dan Hesse said the mobile carrier expects its prepaid sales to continue to increase throughout the year and in the next few weeks will implement its prepaid brand strategy as well as repositioning its existing brands, and adding another brand, which should impact results in the second half of the year.

The wireless carrier plans to revamp its Virgin Mobile brand and will introduce another brand to address the pay-as-you-go segment in the next two to four weeks, said Dan Schulman, who oversees Sprint's prepaid business.

Schulman said that while price is always a part of all wireless carriers' value proposition, Sprint is able to take a more sophisticated marketing approach rather than just look at the blunt instrument of pricing for the sake of pricing.

Overall, postpaid ARPU (average revenue per user) was $55, down $1 from $56 in the year-ago period. Prepaid ARPU stood at $27 for the quarter, down $4 from the $31 in ARPU a year ago.

Part of the reason for the decline in ARPU is the addition of Virgin Mobile and Assurance Wireless branded customers, who have lower ARPU than Boost Mobile customers.

The wireless carrier said going forward it will not disclose ARPU data because it is part of its fixed-rate bundle plans.

While Hesse said that its prepaid business may cannibalize some of its own postpaid subscribers, it was better to lose postpaid customers to its own prepaid brands rather than its competitor's prepaid offerings.

In response to a question on speculation that Clearwire may add more carriers on its network in the future, Hesse said Sprint gets a founder's discount from Clearwire that other wireless carriers will not get. He declined to comment any further, however.

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Source: Sprint Nextel.