Sprint posts smallest quarterly loss in 4 years

AP News
Posted: Oct 26, 2011 6:21 PM
Sprint posts smallest quarterly loss in 4 years

Sprint Nextel Corp. on Wednesday reported its smallest quarterly loss in four years, as it continued a turnaround and kept getting better at keeping and attracting customers.

Sprint also provided important updates on the iPhone, its financing needs and planned network upgrades, undoing some of the damage caused by an investor day presentation three weeks ago that had investors fuming and sent its stock plunging.

Its stock edged lower Wednesday as investors continued to focus on finances that look precarious for the next two years.

The country's No. 3 wireless carrier said it added a net 1.3 million subscribers in the July to September period, the best result since 2006. Sprint continued to lose subscribers from its lucrative contract-based plans, but at a relatively low rate: 44,000 in the quarter.

Sprint's total customer count, 53.4 million, is now back at where it was in 2007, before the exodus of Nextel customers turned into a torrent.

The Overland Park, Kan.-based company has made steady gains in the last year and a half. Unfortunately for the company, most of the new customers are low-paying ones. They buy service from Sprint's low-cost Virgin Mobile, Boost Mobile or Assurance Wireless brands, or from non-Sprint brands that use the company's network.

The latest subscriber results don't include the effect of the iPhone, which Sprint started selling Oct. 14. The phone is expected to further improve the carrier's ability to keep customers, but at a high price. Apple charges about $600 for a phone that Sprint sells for $200.

Chief Financial Officer Joe Euteneuer said each iPhone will cost the company about $200 more than another smartphone. All the same, the company expects its four-year purchasing agreement with Apple to add $7 billion to $8 billion to its own bottom line.

CEO Dan Hesse compared getting the iPhone to signing a star baseball player to the "Sprint team."

"He has an expensive contract, but he's worth every penny," said Hesse, who often draws on sports analogies.

The problem for Sprint is that the cost of selling the iPhone comes up front, while the benefits, like higher service fees and lower service costs, accrue over time. Sprint doesn't expect the iPhone to be a moneymaker until 2014.

The added cost of the iPhone comes as Sprint is also starting to revamp its network for higher speeds. That adds up to financing needs of $5 billion to $7 billion in the next few years, Euteneuer said.

Sprint hopes to cover the gap by refinancing $4 billion debt coming due, Hesse said. The remaining $1 billion to $3 billion could be raised in the form of financing from the companies Sprint buying its new network equipment from: Samsung Electronics Co., Alcatel-Lucent and LM Ericsson AB.

Euteneuer said the terms of the deal with Apple are confidential, but said there's a minimum commitment to buy $15.5 billion in iPhones over four years. That works out to about 25 million phones, a figure in line with a report in The Wall Street Journal early this month that the company had committed to buying 30 million iPhones over four years.

Figures on the effect of the iPhone on Sprint's finances were missing from the presentation on Oct. 7, contributing to investor consternation. On Wednesday, Euteneuer apologized for not providing more information then.

Also Wednesday, Sprint said it had raised the limit on its credit line by $150 million and amended the terms so that an increase in the total amount of phone discounts doesn't affect its creditworthiness. It said it had $1 billion undrawn on the line.

Sprint's net loss was $301 million, or 10 cents per share, for the third quarter. That's down from $911 million, or 28 cents per share, a year ago. It was the best performance by Sprint since it reported a profit of $64 million in the third quarter of 2007.

Revenue rose 2.2 percent to $8.3 billion.

Analysts polled by FactSet expected a loss of 22 cents per share on $8.4 billion in revenue.

Sprint shares slipped 19 cents, or 7 percent, to close at $2.51 Wednesday. Two weeks ago, they hit a three-year low of $2.10.

Hesse also said the company has started discussions with Clearwire Corp. on how to make Sprint phones compatible with Clearwire's planned new wireless data network, and a discussions on commercial arrangements are ongoing. That sent Clearwire shares up 32 cents, or 20 percent, to close at $1.96.

Sprint owns 54 percent of Clearwire and uses its current data network for "Sprint 4G" service. But it doesn't control Clearwire's board, and the relationship between the two management teams has been cool.

Earlier this month, Sprint said it would stop selling phones compatible with Clearwire's current data network at the end of next year, with no mention of plans to use the planned "LTE" or "Long-Term Evolution" network. That sent Clearwire shares into a dive.

Sanford Bernstein analyst Craig Moffett said Sprint third-quarter results were "fairly good." If the company can straighten out its network strategy and its Clearwire relationship, investors might start to look past the financing needs of the next two years and toward the benefits that should kick in in 2014, he said.

"For the first time in a year, expectations are appropriately low, and there are now at least a few glimmers of hope," Moffett said.