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May 5, 2009

Yesterday, Sprint reported worsening first-quarter losses and said the rest of the year is going to continue to be challenging for the wireless operator.

Now the company is saying it may outsource its mobile network to Ericsson in an effort to significantly reduce costs.

On January 27, Sprint had already announced that it would cut about 14 percent of its workforce (about 8,000 people) and at the same time it reduced capital spending by almost 80 percent in its first quarter.

According to The Wall Street Journal, industry observers are saying that a deal with Ericsson could reduce network costs by another 20 percent and it would allow Sprint to transfer from 5,000 up to 7,000 employees to Ericsson.

Sprint’s board has yet to decide if the cost savings justify the complex arrangement, and it’s still possible the mobile operator will back out of the deal.

The company lost over $593.9 million in Q1, or 21 cents per share, compared to last year’s first quarter loss of $505 million, or 18 cents per share. The widening loss was aggravated by a $327 million charge related to severance costs and slumping subscribership.

Sales at Sprint dropped 12.2 percent to $8.24 billion.

The company’s subscriber base dropped from 49.3 million to 49.1 million after losing 1.25 million postpaid customers and 90,000 prepaid customers. The company has lost over 6 million customers in the past 18 months alone.

Postpaid ARPU (average revenue per user) remained flat at $55.92 as growth in fixed-rate bundles offset seasonal declines in usage. Data revenues accounted for over $15 to overall postpaid ARPU. Prepaid ARPU grew to $31, from $29 in last year’s first quarter and $30 last quarter.

The company’s postpaid churn rate continued to be higher than that of competitors AT&T and Verizon Wireless, hitting 2.25 percent in the first quarter. Sprint said the sequential increase in its churn rate was driven by deactivations on business lines, though the churn rate decreased compared to last year’s figure of 2.45 percent.

Churn in Sprint’s prepaid Boost Mobile segment fell to 6.86 percent as the prepaid service attempted to fix ongoing problems with text messaging delivery delays caused by growth in subscribers.

Sprint expects subscriber losses to improve this year as it prepares to be the exclusive wireless carrier of the Palm Pre.

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Source: LNR.