Boosted by strong wholesale growth and robust tablet net additions on the postpaid side, Sprint was able to post modest customer growth, though its financial picture remains cloudy and investors remain on edge.
Sprint said it added 484,000 net connections to its network during its fiscal second quarter, which ended on Sept. 30. That growth was a stark turnaround from the 313,000 customers it lost during the same quarter last year. The growth also pushed the carrier’s connection base back up past the 55-million customer mark, a number it had not seen since early last year.
As stated, Sprint’s wholesale and affiliates business drove most of the growth, with that segment posting 840,000 net additions for the latest quarter. That offset an improved loss of 336,000 postpaid customers and deeper loss of 20,000 prepaid customers compared with the same period last year.
Sprint noted that on the postpaid side it managed to attract 261,000 tablet net additions, which was offset by the loss of 533,000 smartphones and “other devices.”
Sprint’s management made note that it witnessed strong momentum coming out of the latest quarter, including a 37% month-over-month increase in postpaid phone gross additions; a 60% slowdown in postpaid phone net losses; and its most successful new iPhone launch in its history. In connection with the latest Apple iPhone launch, Sprint introduced a new device-specific rate plan to go along with new marketing efforts that followed a management shake up.
While momentum may be improving, Sprint’s quarterly churn increased year-over-year from 2.09% to 2.22% on the postpaid side and from 3.78% to 3.81% on the prepaid side. Sequentially, postpaid churn increased from 2.09%, while prepaid churn was down from 4.5%.
Sprint said churn results could remain elevated through the end of this year as it has adjusted its credit ratings in order to improve the quality of its postpaid base. That increase is also expected to result in continued postpaid customer losses.
Financially, postpaid average revenue per user dipped from $63.48 last year to $60.24 this year, while prepaid ARPU increased $1.87 to $27.73.
Despite the dip in ARPU, Sprint managed to post a 9.5% year-over-year increase in revenues to $8.5 billion for the quarter, though the number was down from the nearly $8.8 billion posted during the previous quarter. Expenses also increased both year-over-year and sequentially to $8.7 billion, resulting in a net loss of $765 million for the latest quarter compared with a return of $23 million during its first fiscal quarter of the year.
Earnings before interest, taxes, depreciation and amortization showed a slight year-over-year improvement, but dived sequentially from $1.8 billion to $1.1 billion, with EBITDA margins dropping from 23.8% during the previous quarter to 18.6% in its latest quarter.
Overall, the news was not greeted warmly by investors as Sprint’s stock (S) was down nearly 13% in pre-market trading on Tuesday.
Analysts also remained cautious on Sprint’s financial future.
“With the company now tightly controlled by a single shareholder (Softbank) and with the replacement of the CEO, it just might be possible for this company to turn the corner in an increasingly competitive environment,” explained Canaccord Genuity financial analyst Greg Miller. “However, one thing should be clear by now. We believe investors should wait until it’s clear the still-evolving strategy is sustainable rather than speculating as so many have.”
Capex adjustment
Sprint posted just $1.14 billion in cash capital expenditures for the latest quarter, which was well below expectations. The carrier also said that for its full fiscal year, capex would come in below $6 billion, compared to previous forecasts of under $7 billion.
In its investor call, Sprint’s management explained that most of its capex focus was now geared towards its 800 MHz and 2.5 GHz LTE overlay plans, with the increased traffic handled by its LTE network allowing the operator to trim spending on its legacy 3G network. Sprint’s CDMA-based 3G network was a core piece of the $5 billion Network Vision program that saw the carrier basically replace all of its legacy equipment.
Sprint said that spending on its 800 MHz and 2.5 GHz network remained “on track,” with LTE coverage recently reaching 260 million potential customers covered. Deployment of LTE across its 800 MHz spectrum hit 50% of its coverage footprint, with plans for full coverage by the end of next year. That spectrum band is also expected to see complete coverage of Sprint’s CDMA2000 1x-Advanced voice service by the end of this year.
As for its 2.5 GHz plans, Sprint CEO Marcelo Claure said the carrier had recently surpassed 92 million pops covered on its way to hitting 100 million pops covered by the end of this year. Going forward, the carrier is looking to prioritize deployment into markets where it’s seeing “higher usage and capacity demand,” as well as increasing marketing in those areas hyping its greater network capabilities. Sprint has said that its 2.5 GHz-based Spark program will provide users with network speeds in excess of 50 megabits per second, or about 10-times the speed being produced by its current 1.9 GHz-based LTE network.
Claure previously announced that Sprint would be more selective in its 2.5 GHz rollout plans, pulling back from the carrier’s previously announced plans to install support across all of its cell sites.
Sprint late last week announced current Softbank EVP and CTO Junichi Miyakawa would take on the newly created role of technical COO. Sprint explained that in the new position, Miyakawa will oversee the company’s network and technology organization, including related strategy, network operations and performance, and will lead Sprint’s relationships with “key network equipment vendors.” Miyakawa will also report directly to Sprint’s recently installed CEO Marcelo Claure.
Sprint pointed to Miyakawa’s work on rolling out Softbank’s 2.5 GHz-based mobile services.
“Miyakawa-san transformed the SoftBank network in Japan and I’m confident that his expertise and leadership will help us do the same thing for Sprint customers,” said Claure in a statement. “We already have made substantial progress on the Sprint network and it is performing better every day. He will work directly with our network team as we continue to build out our network to take advantage of our strong and unique spectrum position.”
Softbank impact
Sprint’s troubled quarter also forced parent company Softbank to reduce its full-year profit forecast by $1 billion, with the Japanese firm announcing a 23% drop in profits for its second fiscal quarter.
However, the firm and its chief executive Masayoshi Son remain behind the U.S. operations.
“Sprint’s battle will be long and tough, and it’s not something that can be fixed in a short time,” Son told reporters in Tokyo, according to Reuters. “Along with cost cuts, we want to increase prime customers, not sub-prime customers, and we are already seeing things turn better.”
Son late last week named current Softbank EVP and CTO Junichi Miyakawa to the newly created role of technical COO at Sprint in a move to further Softbank’s influence at Sprint.
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