Categories: Quarterly Earnings

Sprint Nextel’s Q2 growth comes at a cost

Sprint Nextel Corp. (S) continued its operating turn around during the second quarter, but those improvements appeared to have come at a cost.
The carrier managed to add nearly 1.1 million new customers to its network during the quarter, which was about 1 million more than it added during the second quarter of 2010, and in line with estimates. That growth included 674,000 prepaid net additions and 519,000 net additions from wholesale and affiliates that offset the loss of 101,000 postpaid subscribers. Those postpaid net losses included defections by 327,000 iDEN customers and 49,000 subscribers to the carrier’s dual-network Powersource devices, which offset the gain of 226,000 postpaid customers to its CDMA network.
Sprint Nextel’s management added that it still expects to post improved postpaid losses for the year compared with the 853,000 customers it lost in 2010. So far this year the carrier has lost 215,000 postpaid customers.
By comparison, Verizon Wireless (S) reported last week that it added 2.2 million new connections to its network during the quarter, including 1.3 million postpaid and 890,000 wholesale customers; while AT&T Mobility (T) said it added 1.1 million new connections, including 331,000 postpaid, 137,000 direct prepaid, 379,000 “connected devices” and 248,000 from wholesale partners.
Sprint Nextel noted that at the end of the quarter it served more than 52 million customers on its network, made up of approximately 33 million postpaid, 13.8 million prepaid and 5.4 million from wholesale partners and affiliates. Those numbers also showed that the carrier has lost approximately 10 million postpaid customers from its iDEN network since Sprint Corp. acquired Nextel Communications Inc. in 2004, leaving just 5 million of those customers remaining on the iDEN network.
Sprint Nextel was quick to point out that its improving customer growth results were bolstered by decreased customer churn of 1.75% for its postpaid services and 4.14% for its prepaid operations, which was a six-year low. During the second quarter of last year Sprint Nextel’s postpaid churn was 1.85% and prepaid churn was 5.61%.
That customer growth, along with increased postpaid average revenue per user and stable prepaid ARPU helped push total revenues for the quarter up from $8 billion in 2010 to $8.3 billion this year.
However that growth and ARPU accretion was also helped by increased smartphone sales, which typically include higher subsidies and inflated operating expenses a similar amount. This, combined with an increase in losses from other investments pushed net losses from $760 million during the second quarter of 2010, a loss of 25 cents per share, to a loss of $847 million this year, or a loss of 28 cents per share.
This seemed to have a bigger impact on investors as Sprint Nextel’s stock price slumped more than 16% in early trading to as low as $4.14 per share.
Additional expenses at Sprint Nextel came from capital expenditures on its wireless network, which increased from $319 million during the second quarter of 2010 to $546 million this year. The carrier attributed the increase to investments in data capacity to keep up with demand for data services. For the year, Sprint Nextel has spent just under $1 billion on capital expenditures.

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