The iPhone impact on carriers continued as Sprint Nextel (S) posted strained fourth quarter results, which was its first quarter in offering Apple’s (AAPL) iconic device. The results followed similar strains posted by Verizon Wireless and AT&T Mobility.
The nation’s No. 3 carrier said it sold 1.8 million iPhones during the final three months of 2011, with 60%, or just over 1 million, going to new customers. Analysts have noted that channel checks indicated that Sprint Nextel had been snaring market share most notably from T-Mobile USA, which does not offer the iPhone, and to a lesser extent from long-time iPhone home AT&T Mobility.
During the fourth quarter, Sprint Nextel said it added 1.6 million net customers, which included nearly 2.4 million through postpaid, prepaid and affiliates on its CDMA network that was offset by the loss of 770,000 customers through postpaid and prepaid channels from its iDEN network. Broken out, the carrier said it added 954,000 customers through affiliate and wholesale partners, 507,000 customers through its prepaid channels and 161,000 customers through direct postpaid channels.
That quarterly growth was significantly higher than the 1.1 million net customer additions it posted for Q4 2010, while full-year total increased from 1.8 million net customer additions in 2010 to 5.1 million net customer additions last year.
Customer churn remained a mixed bag for the carrier as postpaid churn increased during the fourth quarter from 1.86% in 2010 to 1.98% this year, while prepaid churn plunged from 4.93% in 2010 to 3.68% this year. However, for the full year both results improved as postpaid dropped from 1.95% to 1.86% and prepaid from 5.39% to 4.05%.
Analysts were expecting Sprint Nextel to post increased churn for the quarter, citing recent trends in tightening credit requirements that resulted in higher involuntary churn.
The company’s plans to shutter its iDEN network continue to be helped by customer defections, with the carrier serving 6.3 million total customers on that network at the end of 2011. It should be noted that when Sprint acquired Nextel in 2004 the carrier served more than 15 million customers on its iDEN network.
Average revenue per user was also a mixed bag as postpaid results increase from $55.26 to $58.59 year-over-year during the fourth quarter, while prepaid ARPU dipped slightly from $27.95 to $26.62. Those postpaid results came in slightly above estimates and is currently the highest among nationwide operators.
Total revenues from its wireless operations increased 7.6% year-over-year during the fourth quarter to $7.9 billion, while full-year revenues were up 6% to $30.3 billion.
Operating expenses, and more specifically subsidizing iPhone sales, hit the carrier’s bottom line. Sprint Nextel noted that wireless equipment subsidies surged from $1.2 billion during the fourth quarter of 2010 to $1.7 billion this year, which it attributed to the iPhone.
Network expenses also increased 12% year-over-year, which the carrier attributed to higher 4G data usage, which Sprint Nextel has to pay to Clearwire, investments in its Network Vision plan and costs associated with an increasing number of customers using smartphones.
Overall, Sprint Nextel’s wireless operating expenses increased 10.4% for the quarter to $8.4 billion, while full-year expenses increased 2.5% to $30.6 billion. This increase resulted in a quarterly net loss of $500 million in 2011 compared with a loss of $267 million in 2010, while full-year losses dipped from a loss of $1.2 billion in 2010 to a loss of $256 million last year.
Sprint Nextel also noted that its Network Vision initiative remains on track, with the carrier expected to launch LTE services running across the network this summer in previously announced Houston, Dallas, San Antonio and Atlanta, and newly announced Kansas City and Baltimore. The carrier said it expects to have 12,000 sites updated with new infrastructure by the end of the year, and complete the majority of the rollout by the middle of 2013.
Highlighting its network plans, Sprint Nextel reported that wireless capital expenditures increased from $473 million during the fourth quarter of 2010 to $774 million last year, with $370 million of that going to its Network Vision plan. The carrier said it expects to spend $6 billion on capex in 2012, which was ahead of forecasts and could be good news for infrastructure providers.
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