Sprint loss widens on Nextel, iPhone lifts sales
NEW YORK—The iPhone boosted struggling Sprint Nextel Corp. in the latest quarter, letting it beat AT&T and perhaps even Verizon in recruiting high-paying phone subscribers to the Sprint network.
Sprint started selling the iPhone in October, after AT&T and Verizon. To get it, it had to promise Apple that it would buy phones for $15.5 billion over four years -- a big sum for a company in a precarious financial position -- and analysts have noted that the phone could push Sprint over the edge, into bankruptcy.
But in the first quarter, the iPhone appeared to help Sprint recruit subscribers and get more money out of each one.
Sprint added a net 263,000 subscribers to the Sprint network on contract-based plans, which are the most lucrative. That was up just a smidgen from last year's figure in the same quarter, but it comes as AT&T and Verizon Wireless have seen big drops in new customers.
Excluding tablets, which earn lower fees, Verizon Wireless added a net of about 240,000 customers in the quarter, while AT&T added 7,000.
The Sprint figure includes some tablets, but the number is likely small, because unlike Verizon and AT&T, Sprint does not sell the iPad.
Sprint's data network is much slower than Verizon's or AT&T's, but it has been luring smartphone subscribers by offering unlimited data usage. AT&T and Verizon Wireless have stopped signing up new customers for unlimited data plans, and AT&T has started slowing down data usage severely once customers on its "unlimited data" plan hit certain usage limits.
On a call with analysts Wednesday, Hesse defended the iPhone, saying customer desire for the device and lower customer support costs justify the price.
"The evidence so far supports our decision to carry the phone," Hesse said.
Sprint activated 1.5 million iPhones in the quarter, down from 1.8 million in the fourth quarter.
Helped by a $10 per month surcharge on smartphones imposed last year, Sprint's wireless service revenue rose 7.4 percent from a year ago, compared to 7.7 percent at Verizon, which has had more time to sell the iPhone. At AT&T, the figure was 4.3 percent.
"Sprint posted easily the most impressive (quarter) in U.S. telecom," said Kevin Smithen, an analyst at Macquarie Securities.
Sprint shares fell 4 cents, or 1.6 percent, to close at $2.43 Wednesday. The shares are still close to a three-year low of $2.10 hit in January.
However, Sprint's contract subscriber additions turn into a net loss of 192,000 when the outdated Nextel network is included. Since buying Nextel in 2005, Sprint has struggled with the cost of running two disparate wireless networks, even as Nextel customers have cancelled service in droves. It's scheduled to shut the network down next year.
The depreciation, or drop in value, of the Nextel network widened Sprint's net loss from January through March to $863 million, or 29 cents per share. In the same quarter last year, the Overland Park, Kan., company's loss was $439 million, or 15 cents per share.
Analysts polled by FactSet were on average expecting a loss of 42 cents per share. Sprint beat that with the help of the better service revenues and a one-time benefit from a cancelled network-sharing contract.
Revenue was $8.73 billion, up 5 percent from a year ago. Analysts were expecting $8.71 billion.
Sprint has already started thinning out the Nextel network, turning off cell towers. Steve Elfman, the head of network operations, said this shouldn't affect service, since there are only 5.4 million Nextel subscribers left. That's 10 percent of the overall number of Sprint Nextel customers.
On the radio frequencies freed up by the Nextel phase-out, Sprint is building a new fourth-generation, or 4G, wireless broadband network using the "LTE" technology AT&T and Verizon are using. It's reducing its reliance on Clearwire Corp.'s 4G network for data service for its smartphones. That means Clearwire 4G, which is based on an older network technology, is no longer a selling point for its smartphones. Sprint will now make Clearwire 4G available on phones for its Boost Mobile and Virgin Mobile pay-as-you go brands, Hesse said.
Sprint has 15.3 million pay-as-you-go subscribers, making it second only to Tracfone in the U.S. no-contract phone market.