OVERLAND PARK, Kan.—Sprint Nextel Corp. shares were down sharply after the company reported a scant 708,000 net subscriber additions in the second quarter, most of which were prepaid customers.
Sprint Nextel added just 210,000 postpaid subscribers in the quarter. The rest of the carrier’s subscribers came from prepaid division Boost Mobile L.L.C.
Analysts had expected a weak postpaid performance from Sprint Nextel, but the company’s results were lower than projected. Sprint Nextel’s stock was down about 15 percent in trading after the news.
The industry’s No. 3 carrier was also unable to get its churn down from 2.1 percent, where it has hovered for several quarters. Meanwhile, Boost churn increased to 6 percent, from 5.4 percent in the first quarter.
The acquisition of Nextel Partners Inc., which closed during the second quarter, brought Sprint Nextel’s customer base up to 51.7 million subscribers.
Despite increasing demand for data services, the company’s average revenue per user dropped 6 percent compared with the second quarter of 2005, landing below $62; however, the carrier noted that about one-third of the ARPU decline “is attributable to the acquisition of affiliates.” Data revenue increased by almost 70 percent year-over-year, the company reported.
Sprint Nextel noted that “lower average monthly voice price plan revenues were partially offset by higher data revenues,” and that Boost’s ARPU dipped from $38 in the year-ago quarter to $34, based on lower pricing and lower average use.
According to Gary Forsee, Sprint Nextel president and chief executive officer, the company saw more subscribers than it had expected move to lower-priced service plans. Also, Forsee indicated that Sprint had adopted initiatives to “improve our customer credit mix and customer loyalty,” areas that he said affected the quantity of carrier’s postpaid additions. However, Forsee said the new customers Sprint Nextel did attract were “higher quality.”
“While the company shines the spotlight on bells and whistles, including mobile music and quadruple-play services for cable TV customers, its primary focus should instead be on improving the quality of its core product: postpaid retail service,” noted John Byrne, an analyst for industry advisory firm Technology Business Research.
Overall, Sprint Nextel’s net income took a substantial hit, plummeting from $600 million in the second quarter of 2005 to $370 million this year.
Despite the disappointing quarterly results, Sprint Nextel reaffirmed its commitment to upgrading its network to CDMA2000 1x EV-DO Revision A. The carrier said it plans to cover approximately 40 million potential customers with the higher-speed technology by the end of this year, and have most of its network covered by the end of 2007. The technology upgrade will also enable Sprint Nextel to move ahead with the merger of its iDEN/CDMA walkie-talkie services using Qualcomm Inc.’s QChat technology.
Sprint Nextel also announced that it will expand its telephony relationship with Time Warner Cable. Time Warner plans to use Sprint Nextel’s IP network for Voice over Internet Protocol offerings across most of the cable company’s footprint, except for New Hampshire and Maine. The five-year agreement “marks Sprint Nextel’s continued expansion into the cable market, creating a revenue stream with strong growth potential,” the carrier said.
