Sprint Nextel Corp. confirmed its dismal fourth-quarter customer numbers, which reflected an increasingly schizophrenic performance: reasonably healthy performance of its CDMA offerings, dragged down by unhappy iDEN customers. Meanwhile, competitor T-Mobile USA Inc. continued to prove the bright spot for its parent company.
Sprint Nextel ‘uneven’
The carrier announced in early January that it expected to report a loss of about 306,000 postpaid customers during the fourth quarter, reflecting continued losses from the Nextel side of its business. Sprint Nextel gained 742,000 overall net customers during the fourth quarter.
Sprint Nextel Chairman and CEO Gary Forsee said that the company “experienced uneven financial performance between our network platforms and within some of our key wireless metrics.”
The carrier highlighted those differences by breaking out detailed CDMA and iDEN information-information the carrier does not typically provide-such as average revenue per user stats on postpaid subscribers for each network. Total ARPU for the quarter was around $60 postpaid, down
about 1 percent sequentially and about 5 percent year-over-year. Sprint Nextel said that CDMA ARPU was down 1 percent year-over-year, while iDEN ARPU fell 8 percent.
According to Sprint Nextel, it gained more than 1.3 million net CDMA postpaid, wholesale and affiliate customers during the quarter; but that figure was offset by losses on the iDEN side. The carrier ended the quarter with a subscriber base of 53.1 million. The number keeps Sprint Nextel in third place among national carriers, but the carrier is not keeping pace with the growth of larger competitors Verizon Wireless and Cingular Wireless L.L.C.
Sprint Nextel’s churn rate was up from 2.1 percent in Q4 of 2005 to 2.3 percent in 2006, although the rate fell slightly from 2.4 percent in the third quarter of 2006. Prepaid churn among customers of the company’s Boost Mobile L.L.C. sub-brand also increased, from 4.8 percent to 6.5 percent during the fourth quarters of 2005 and 2006. Boost’s ARPU plunged 14 percent year-over-year to just under $32.
Several analysts said after the company’s quarterly call that they expect Sprint Nextel’s performance to improve in the second half of this year, and the carrier’s stock price rose about 5 percent on Thursday. Raymond James analyst Ric Prentiss continues to rate the stock as a strong buy and said that the carrier “seems to be finally finding its voice on its position in the wireless industry-data leadership.”
The carrier said its data revenues increased 66 percent compared with the fourth quarter of 2005, and contributed $8.75 to overall ARPU and almost $12, or 20 percent, of CDMA postpaid ARPU.
Forsee said that Sprint Nextel has poured money into business operations and network investments during the fourth quarter in order to improve its metrics.
“We are seeing early returns from these investments as we widen our lead in wireless data services on the CDMA platform and with the iDEN network now delivering substantially improved call-quality metrics,” Forsee said. Analyst Tom Watts of Cowen & Co. estimated that accelerated network investments from late 2006 would improve the iDEN network’s performance by the second quarter and Sprint’s postpaid net adds could turn positive in that quarter.
Wireless revenues increased 9 percent year-over-year to $9 billion for the fourth quarter. Sprint Nextel reported that its net income for the fourth quarter was up 32 percent to $261 million, but down almost 26 percent from the full-year results for 2005.
T-Mobile good for DT
Meanwhile, T-Mobile USA again proved to be the biggest wireless growth engine for its parent company, Deutsche Telekom AG, despite a significant year-over-year drop in its net number of new customers.
T-Mobile USA reported 901,000 net subscriber additions during the quarter, down from the 1.39 million customers that it added during the fourth quarter of 2005. However, the mix of customers improved, with 87 percent of the customers coming from postpaid, an increase from the 66 percent in 2005
T-Mobile USA’s total churn was flat year-over-year, and postpaid churn declined from 2.3 percent in the fourth quarter of 2005 to 2.1 percent during the same period of 2006. T-Mobile USA ended the year with more than 25 million customers.
Analyst Ken Hyers of Technology Business Research Inc. noted that the company’s relatively high churn rate means that it “operates at a significant disadvantage to its competitors,” but that T-Mobile USA’s move to two-year contracts “should result in steady churn improvements in 2007.”
The carrier’s net income was down as well, primarily due to income tax benefits received in prior quarters, the company said. Profits for the quarter totaled $179 million, down sequentially from $1.79 billion and from $2.99 billion in the fourth quarter of 2005.
Service revenues, however, were up from $3.26 billion in 2005′s fourth quarter to $3.81 billion for 2006′s fourth quarter. Blended average revenue per user was unchanged year-over-year at $52, but postpaid ARPU increased from $54 to $56. Data ARPU grew from $4.80 in the fourth quarter of 2005 to $6.50 during the same period of 2006.
Rene Obermann, chairman of DT, said in a company statement that T-Mobile USA “is playing an increasingly vital role in bringing a service leadership culture to all of DT” and it continued “to assert its position as the leading growth driver for Deutsche Telekom.”
The parent company didn’t have an easy year of it. In the company’s annual report, Obermann said that 2006 was a “difficult, indeed a tough financial year” for the company, “and 2007 will certainly not be easier.”
The company, which in January revised downward some of its guidance for this year, outlined a strategy to improve its fortunes which included improving its competitiveness in its home market of Germany, mobilizing the Internet and growing its international wireless business.