Sprint PCS announced better-than-expected results in customer growth, revenues and cash-flow losses for the first quarter and released some long-awaited information about customers using its wireless Web offering.
The nationwide personal communications services carrier said it added 831,000 net subscribers, ending the quarter with about 6.5 million customers. Sprint PCS management said it expects the company will add around 800,000 subscribers in the second quarter.
News of Sprint PCS’ strong quarter was followed by a slew of analyst upgrades. Bear, Stearns & Co. analyst David Freedman raised the company’s rating on Sprint PCS to “attractive” from “neutral,” based on the company’s improvements in churn reduction and cost per subscriber addition. ABN AMBRO analyst Kevin Roe raised his rating from “hold” to “outperform,” and Wit SoundView analyst Tim O’Neil raised his rating from a “buy” to “strong buy.”
One of the biggest areas of concern for analysts late last year was Sprint PCS’ high churn rate, which was in the mid 3-percent range in the fourth quarter. Sprint PCS recorded churn at 3 percent for the first three months of this year.
Factors driving the decline in churn were the addition of services like wireless Internet access, continued expansion of network coverage, customer service improvement and a more mature customer base, said Sprint PCS President Andy Sukawaty.
Also key to the reduction is Sprint PCS’ aggressive move toward offering contracts. Though customers have the choice not to sign a contract, they receive more incentives if they are willing to make long-term commitments, said Sukawaty. This has been a key success strategy for another PCS operator, VoiceStream Wireless Corp., which offers better airtime pricing if customers sign long-term contracts with the carrier. Sukawaty said Sprint PCS will roll out more “commitment” offerings this quarter.
Since introducing wireless Internet access last September, Sprint PCS said customers enrolled in monthly data plans now number more than 100,000. More than 250,000 casual users-those who don’t subscribe to a wireless data plan-accessed the Internet via their handsets in the month of March, Sukawaty told analysts during the company’s quarterly conference call.
“In the latter part of the quarter, we introduced simplified pricing for wireless Web users, which we believe improves the value proposition to the consumer and should continue to spur wireless data usage across the customer base,” said Sukawaty.
Sprint PCS customers now can add wireless Web service to their monthly calling plans for a $10 fee. This allows customers to freely use their buckets of minutes for voice calls or Internet access, said Sukawaty, and should drive more usage. Previously, the carrier charged $10 for 50 minutes of data use in addition to customers’ voice plans. Almost 3 million handsets were Web-enabled at the end of the first quarter.
Sukawaty said wireless Web service nearly doubled among business customers, and the carrier is testing future wireless Web applications with these customers.
Sprint PCS management believes the company will reach EBITDA break even later this year. The operator expects to record an EBITDA loss of $100 million in the second quarter, compared with $181 million in the first quarter.
Average revenue per user in the first quarter was $54, compared with $52 the previous year. Sukawaty said a large amount of customers are signing up for high-minute promotional plans. The carrier also began charging activation fees to help offset the costs of acquiring customers. Sprint PCS said it could see higher ARPUs from data services this year.
Total service revenue for the quarter reached $1 billion, while losses from continuing operations for the quarter decreased to 54 cents per share from 71 cents per share a year ago.
Sprint PCS transferred about 45,000 customers to its affiliate, Independent Wireless One during the quarter. Excluding this transfer, the carrier would have added 876,000 customers.
Sprint PCS affiliates supported about 400,000 subscribers at the end of the first quarter, bringing total subscribers to 6.9 million. Sprint PCS’ network coverage, including the 18 affiliate companies, now covers 195 million people or more than 70 percent of the U.S. population. Sukawaty said Sprint PCS has the largest digital footprint in the country. Capital expenditures for the first quarter were $693 million, and the company expects to spend as much as $3 billion for the year.
