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Sprint Nextel’s roller coaster ride continues in Q3; Network Vision plans delayed

Sprint Nextel (S) continued to show uneven financial and operational results during the recently completed third quarter, posting some metrics that beat expectations, while others continued to lag.

The carrier’s struggles with its iDEN network hounded customer growth, with Sprint Nextel posting a loss of 423,000 total customers, all driven by defections from that network. The results included 410,000 postpaid net customer additions from the carrier’s CDMA/LTE operations that were offset by the loss of 866,000 net postpaid customers from its iDEN operations. On the prepaid side, Sprint Nextel said it added 459,000 customers through its CDMA/WiMAX offerings, which was nearly offset by the loss of 440,000 prepaid iDEN customers. Sprint Nextel’s once bullish wholesale and affiliate offerings added just 14,000 customers during the quarter.

Year-over-year, Sprint Nextel’s customer metrics plummeted from the nearly 1.3 million net additions posted during the third quarter of 2011, which was bolstered by 835,000 net customer additions through its wholesale and affiliate operations. Sprint Nextel also noted that the “credit quality” of its customer base dipped from 83% being considered “prime” in 2011 to 82% this year.

Sprint Nextel did note that despite the continued struggles from its iDEN operations, it managed to retain 59% of those customers that churned from that network, which is set to be shuttered by the end of next year. That recapture rate was higher than expected and nearly matched the 60% posted during the previous quarter.

As for the iPhone impact, Sprint Nextel said that it sold 1.5 million Apple devices during the quarter, with 40% of those sales going to customers new to the carrier. While those sales numbers were significantly smaller than the 4.7 million iPhone sales posted by AT&T Mobility, analysts noted that the percentage of sales to new customers for Sprint Nextel was more than double the 18% posted by its larger rival.

Customer churn was also a mixed bag for the carrier, which saw postpaid churn increase from 1.91% to 2.09% year-over-year, while prepaid churn dipped from 4.07% to 3.37% over the same time frame. Sprint Nextel did warn that prepaid churn is set to see significant growth during the second quarter of next year due to a recent Federal Communications Commission ruling that will require wireless carriers to re-certify customers using government subsidized services. That decision is expected to impact a number of operators, including Tracfone Wireless, Leap Wireless and T-Mobile USA.

Financially, Sprint Nextel the rollercoaster ride continued in regards to average revenue per user. Postpaid customers were paying $61.18 each month, which was $3.53 more than last year, while prepaid customers were paying an average of $26.77 per month, which was down 42 cents per month from last year. Combined with a larger customer base compared with last year, Sprint Nextel posted a 7% increase in revenues to just over $8 billion for the third quarter.

While revenues were up, expenses were also up, as Sprint Nextel reported nearly $1 billion more in operating costs, including a near doubling in capital expenditures to $1.49 billion for the quarter. This led to a drop in operating income from $131 million during the third quarter of last year, to a loss of $281 million this year. Earnings before interest, taxes, depreciation and amortization came in at $1.3 billion, which was just ahead of estimates of around $1 billion.

Despite the increased spending on capital expenditures, most of which are going towards the carrier’s Network Vision program, Sprint Nextel said it was pushing back its plans to have 12,000 cell sites converted from the end of this year to the end of the first quarter of 2013. Analysts were not too concerned about the delay, though the move could impact Sprint Nextel’s ability to compete on a marketing level with its larger rivals that plan on having near-nationwide LTE coverage by the end of 2013.

“Our checks continued to show that while Sprint continues to be very much on focus with its [Network Vision] strategy, we believe that the strong demand from the other three national carriers has caused the pace of this deployment to more difficult,” noted Wells Fargo Securities senior analyst Jennifer Fritzsche, in a research note this morning. “That said, we do not view a [three] month push-out as any sort of significant risk to accomplishing its objectives (especially with the Softbank investment behind it).

Investors were somewhat dour on Sprint Nextel’s quarterly performance, with the carrier’s stock price trading down slightly in early Thursday trading.

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