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Sprint expects it will become profitable in two years from now

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September 25, 2012

Earlier this morning, Sprint CEO Dan Hesse said that he expects the company to become profitable in about two years from now, ending many years of steep losses origination from its ill-fated merger with its struggling rival Nextel back in 2005.

Hesse's predictions were made in an interview with Bloomberg where he expressed some optimism about Sprint's long-term prospects, but he nevertheless warned that the turnaround was a long and very slow process.

Between 2007 and 2011, Sprint totaled $41 billion in annual losses, including a $29.4 billion loss five years ago related to a massive writedown of its Nextel assets.

Hesse said Sprint's network modernization efforts and LTE rollout, along with its gamble on the iPhone, would recompany to growth.

Overall, Sprint is shedding its money-losing Nextel assets, and has been doing so for almost two years already. Its iDEN network from its Nextel merger is slated to be decommissioned as soon as July 2013, and so far this year it has taken down 9,600 cell phone sites that were part of the aging push-to-talk service.

But all those efforts have a very steep price tag. The company's five-year contract with Apple for the iPhone cost Sprint no less than $15.5 billion. Together with the expense of its infrastructure upgrades, the company said in 2011 that it would have to raise up to $7 billion in debt financing to fund its expansion, adding to the company's already considerable debt load.

Additionally, Sprint is currently working to migrate the 4.4 million iDEN customers remaining at the end of June over to its new CDMA-based network. This new so-called 'PTT service' faces competition from Verizon's own CDMA PTT service, and AT&T is aggressively courting customers leaving iDEN.

Sprint's iDEN customers have been a source of new subscribers for its competitors for years, Hesse said during the company's second quarter earnings call. That trend reversed itself last quarter, when Sprint managed to recapture about 60 percent of its outgoing iDEN subscribers, up from 40 percent in the first quarter.

Those recapture rates are far above Sprint's historic average, which Hesse pegged at a slim 25 percent. Sprint has not been without missteps since the Nextel merger.

Despite investing billions into its tie-up with Clearwire on its WiMAX network, the venture has largely failed. Sprint is phasing out its use of WiMAX and will eventually only use Clearwire to supplement its own LTE network.

The company plans to roll out its new LTE network in 100 new cities in the coming months but its deployment is well behind competitors AT&T and Verizon Wireless.

In other mobile communications news

In its never ending battle with Samsung's copyright violations with the iPhone, Apple is hoping to press its advantage, asking for a court order on a wider U.S. ban of its products and an additional $707 million in compensation after scoring a smashing victory over Samsung in August. For this additional request, Apple went back to the same San Jose, Calif., court that ruled in August that Samsung's products copied several key elements of the iPhone. Samsung is seeking a new trial, arguing that there were a number of instructional errors and decisions on evidence that require additional examination.

The judge ruled that Samsung had infringed on a number of Apple's key patents and awarded it $1.05 billion in compensation.

Following its court victory, Apple sought to ban the products mentioned during the trial. The company is now seeking to extend that ban to any Samsung products that potentially infringe on its design patents, which could extend to Samsung's current flagship Galaxy Tab 3.

This legal case was just one of many ongoing trials in the world in a litigation battle that has gone on in multiple courts and in several countries.

Friday, a court in Germany ruled that Samsung didn't violate an Apple patent related to how the finger reacts to touch screens. The latest legal developments come as Apple launched the iPhone 5 on Friday, garnering the usual lines and frenzy for the launch of a new Apple product.

Sales estimates for the iPhone 5 on the first weekend alone have gone as high as 10 million units. Apple and Samsung are in a tight battle for smartphone supremacy, with Samsung in the lead thanks to the sheer breadth of the many different phones it manufactures.

Samsung again warned that if left to stand, the ruling would hurt U.S. consumers and lead to less choice and higher prices down the pipeline.

It also cautioned that it would also embolden Apple to take other rivals to court, the company said in a statement. "Indeed, it is unfortunate that U.S. patent laws can be manipulated to the extent that it actually gives one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies," Samsung added.

Apple has repeatedly said that it was seeking financial compensation appropriate to Samsung's willful use of Apple patents in its product line, which has caused harm to the iPhone maker.

Samsung has already said it would drag the iPhone 5 into the legal battle, indicating that there is no likely end to the fight for a while.

In other mobile news

RIM's increasingly unreliable BlackBerry network is down one more time, disconnecting phone and email users in Europe, the Middle East and Africa, but this doesn't come as a surprise to some. Almost exactly a year go, a week before Apple's co-founder Steve Jobs past away, RIM's network suffered outages that lasted up to two days in some cases, and not just in Europe and the Middle East, but in the U.S., Canada and South America as well.

This morning, Research in Motion's service outage started around 9.00 AM. The company says it's only affecting some users but the mailbox at Vulture Central was filling up with complaints from readers who've experienced the issue so some would seem to be a significant proportion.

As can be expected, RIM isn't saying what's going on, only promising to get it repaired as quickly as possible and apologizing for the outage. "We are currently experiencing a BlackBerry service issue impacting some users in Europe, the Middle East & Africa. All relevant support teams are working to resolve the issue. We apologize to any customers who may be affected," said Waterloo, Ontario-based Research In Motion.

The more socially-aware BlackBerry users will already know all this-- BlackBerry's Twitter feed and Facebook page have had notifications about the issue for the last two hours or so.

In other mobile news

We've all heard of the smartphone and the tablet, and now we can welcome the Phablet. A bit larger than the average smartphone, but smaller than a tablet and equipped with a stylus, the hybrid phablet has emerged as a subset of the mobile device family.

Samsung recently unleashed mobile developers on stylus-driven applications. In April, the company invited app developers to build stylus-integrated apps using its 'S Pen' software development kit. Voting is still going on, but the top apps will receive $205,000 in cash and prizes.

To be sure, Samsung’s Galaxy Note, which entered the U.S. market earlier this year, is perhaps the best-known example. The Android-based device includes a 5.3-inch touch screen and a stylus, which Samsung calls the S Pen.

Also, LG’s Optimus Vu has rolled out a 5-inch Android device that’s equipped with a stylus, which launched in South Korea in March of this year.

And other mobile players are likely to follow suit, especially now that Samsung’s phablet sales have eclipsed the 5 million unit number.

Josh Flood, senior analyst with ABI Research, says he believes phablets compete with 6 to 8-inch tablets and premium smartphones.

In 2011, six to seven inch tablets accounted for about six percent of all tablet shipments, or about 3.7 million units. Flood expects the bulk of the tablet market to remain in the 9-inch-plus range until about 2017 or so.

So what type of buyer will want a phablet? “Many of the mobile handset vendors and wireless operators believe the initial typical user will be what they term feature chasers,” explains Flood. “Additionally, users who are less concerned about data consumption will be prime targets for phablets as well, as they desire a greater Web-browsing experience and better graphics from sites such as YouTube.”

The phablet’s stylus, coupled with the larger display, will provide the greatest flexibility for mobile app developers, according to industry watchers.

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“The stylus is a very important thing that has finally come back to handheld mobile devices,” says Mike Newman, president of On the Go-WARE, a Los Angeles company that specializes in mobile app development, software training and recruitment.

Overall, styluses were widely used with mobile devices about 10 to 12 years ago, but the rise of the iPhone made them rapidly outdated, says Newman. He’d like to see the stylus stick around this time-- “It opens up a whole other realm of creativity you can have with your apps.”

A stylus gives mobile app developers more flexibility and adds an extra feature to look at, says Flood. “Application developers can now include an extra dimension in their apps, with pressure sensitivity as a key feature of the Samsung S Pen.”

For now, stylus-oriented applications are limited to drawing, sketching and note-taking, says Flood. He points to Graffiti, WritePad, 7notes, PhatPad and MyScript Memo as examples.

But the stylus presents plenty of opportunities for other app categories as well. For instance, Flood adds that gaming applications may start using the stylus substantially over the next three to six months.

In a simple football game, the pressure of the stylus could indicate the power of the quarterback’s pass, he notes.

And the stylus may have an even greater impact on the brain and puzzle segment of mobile gaming, says Flood. “The stylus will enable users to navigate puzzles and flick between solutions at a quicker and more stimulating pace.”

But when it comes to user interfaces, the opinions are very mixed. A stylus’ precision input could lead to richer apps and user interfaces, says Newman. While a desktop developer can integrate many controls into an application’s user interface, mobile applications tend to be dumbed down to aid with navigation and accommodate fingers.

But Flood doesn’t believe that the stylus will influence user interface design. “The majority of users will still prefer to use their fingers to operate their phones’ operating system,” he says.

The apps submitted covered a range of functions, from diagramming football plays to applying makeup. App developers should start from scratch when building apps for phablets, says Naga Hariharan, director of product management at Quickoffice, which makes mobile office-productivity software.

Don’t just throw a smartphone or tablet app on a phablet. Take the nuances of this new form factor into account and consider how users interact with this particular device, says Hariharan. How users accomplish a task such as highlighting text and moving it around a document will unfold a lot differently via finger touch versus the fine control of the S Pen.

“Create an application that is custom-fit for that device and you have a better chance of succeeding,” he says.

In other mobile news

HTC and China Merchants Bank have launched a new mobile payment wallet, enabling users of HTC Android smartphones to pay for items wirelessly by gently tapping their device. The technology is stored in a secure chip in the phone and is then available without approval of the wireless network operator.

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Source: Sprint.

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