Sprint Nextel Corp.’s Boost Mobile and wholesale channels did much of the carrier’s heavy lifting in the fourth quarter, helping propel the carrier to 2 million net customer additions. The numbers put Sprint Nextel, technically, on equal footing with Verizon Wireless’ record-breaking net adds, although Verizon’s gains were primarily among retail customers.
In terms of direct postpaid customers, the Sprint and Nextel brands took in a mere 746,000 postpaid customers in the fourth quarter. Boost brought another 642,000 to the table, and Sprint Nextel added 651,000 through wholesale channels-meaning mobile virtual network operators such as Virgin Mobile USA, for the most part-and PCS affiliates.
Sprint Nextel’s figures bring the total number of net new customers added by the top three U.S. carriers to a massive 5.8 million for the quarter. The carrier’s direct postpaid customer figures were in line with or less than analysts’ predictions.
“Generally, everyone thought it was not going to be a good quarter,” said Tom Watts, managing director for telecom, data and satellite services for Cowen & Co., noting that Cowen had dropped its estimate of Sprint’s direct postpaid additions from 912,000 to 750,000. “I was afraid they were going to miss those [numbers],” Watts said. “Based on that fact, 747,000 was a relief.”
However, Boost’s performance and the number of wholesale customers added exceeded expectations-although analysts had predicted that Sprint would see an increase of prepaid customers in its mix. Boost’s customer figures for the year reached 1.5 million, or an increase of 126 percent from 2004. Its revenues jumped 164 percent, and average revenue per user totaled $37. Boost Mobile customer churn stood at 4.6 percent.
Asked about the success of Boost, Watts said, “I think you have to have the postpaid to keep people’s confidence in the company and the brand.”
Still, Len Lauer, Sprint Nextel’s chief operating officer, labored mightily during the company’s results call to point out the value of prepaid customers.
“This value is perhaps not well understood,” Lauer said. “Boost Mobile, for example, may be a prepaid product, but that does not equate to lower margins or marginal value. In fact, it’s quite the opposite.” Lauer went on to declare that Boost Mobile subscribers were on par with postpaid add-a-phone subscribers due to a shorter pay-back period, lower customer-care and acquisition costs and lower network investment demands due to fewer minutes of use.
“We really like our position in the prepaid market,” Lauer added.
Sprint’s total earnings took a hit from merger-related expenses, pushing earnings down 55 percent from last year. Wireless revenues, however, improved 10 percent from the fourth quarter of 2004.
The company reported consolidated net income of just $197 million for the period, compared with $437 million in the fourth quarter of 2004. In Sprint’s wireless segment, the company’s net operating revenues were up 10 percent to $8.23 million from $7.45 million pro forma for the quarter and up 13 percent, to $31.7 million, for the year, compared with $28.1 million pro forma for 2004. The pro forma figures reflected Sprint’s merger with Nextel Communications Inc. and acquisition of various affiliates during the course of the year, including US Unwired, Gulf Coast and IWO Holdings Inc.
Sprint’s postpaid churn rate was 2.1 percent, holding steady from the third quarter of 2005 and down from 2.2 percent in the same quarter of 2004. Overall ARPU was down slightly, as for most carriers, to $63 from $65 for the fourth quarter of 2004; however, Sprint kept its ARPU lead and noted that data services grew nearly 50 percent in the quarter-over-quarter comparison and now account for $6 of postpaid ARPU.
In its other divisions, Sprint reported modest declines in long-distance voice revenue (6-percent year over year) and gains of 4 percent of net operating revenue of its local division; according to Sprint, the growth was driven by growth in data services. Sprint is preparing to spin off its local communications unit and rename it Embarq; that transaction is on track to happen in the second quarter. The carrier also confirmed that it will cut its work force by about 4 percent, or 2,500 jobs, by trimming 4,500 jobs across departments while adding 2,000 jobs in growing areas such as VoIP service and its joint venture with several cable companies.
“We’re looking at all the areas where there’s a duplication of effort,” Sprint spokesman Nick Sweers said, noting that Sprint has consolidated the two companies’ billing platforms into one and that it plans to close stores that are too near another store, so “we don’t need people doing two different billing platforms … and it doesn’t make sense to have stores right next to each other.”
Sweers said the job cuts would come through a combination of natural attrition, voluntary separation plans and some involuntary terminations.
