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Sprint Nextel continues customer struggles, finances improve; future remains focus of investors

The first-quarter blues hit hard at Sprint Nextel as the carrier posted sluggish customer growth, though it managed to show improved financial performance.

Sprint Nextel said it lost 415,000 customers during the first quarter due to continued defections from its iDEN operations and losses through its wholesale partnerships, though the carrier posted shortfalls across most of its segments compared with the first quarter of 2012. Sprint Nextel reported that its CDMA/LTE platform saw net additions drop from 1.9 million during the first quarter of 2012 to just 356,000 net additions this year. The carrier’s iDEN platform, which is on track to be terminated by mid-year, posted a slight improvement as net losses slowed from 836,000 during the first quarter of 2012 to just 771,000 net losses this year.

The one bright side for the carrier continues to be direct prepaid additions through its CDMA/LTE platform that run across its Virgin Mobile USA and Boost Mobile brands, which posted 568,000 net customer additions, though that was well short of the 870,000 customers added through that channel last year. The carrier’s direct postpaid net additions across the CDMA/LTE platform saw an equally dramatic tumble, falling from 263,000 net additions in 2012 to just 12,000 net additions this year. Further adding to the platforms lackluster results was a drop in wholesale net additions from 785,000 during Q1 2012, to a loss of 224,000 customers this year.

Sprint Nextel noted that it sold 1.5 million Apple iPhone devices during the quarter, with 43% of those sales going to new customers. The carrier added that it sold nearly 5 million smartphones during the first quarter and that 86% of its direct postpaid customer base were now using smartphones. Those devices require a $10 per month premium compared with basic devices.

On the iDEN side, Sprint Nextel reported that just over 1.3 million customers remained at the end of the first quarter, with that network set to be shuttered by June 30. Speaking at the Competitive Carriers Association event last week in New Orleans, Sprint Nextel SVP of Networks Bob Azzi, noted that he expects some iDEN customers will refuse to leave the network until it is literally shut down. Sprint Nextel did note that its recapture rate of iDEN customers to its CDMA/LTE platform remained flat year-over-year on the postpaid side at 46%, while prepaid recaptures increased from 23% to 34%.

Sprint Nextel said overall it ended the quarter with 55.2 million total customers, which was down nearly 1 million from the 56.1 million it served at the end of the first quarter last year.

While customer growth appeared to stall, average revenue per user showed robust growth during the first quarter. Sprint Nextel reported that direct postpaid ARPU increased 4.3% from $59.88 in 2012 to $62.47 this year, while direct prepaid ARPU slipped 74 cents to $26.08.

That ARPU growth helped bolster total wireless revenues slightly from $7.95 billion during the first quarter of 2012 to nearly $8.1 billion this year. Those results were driven almost exclusively by the carrier’s CDMA/LTE platform. Despite spending nearly $1 billion more on capital expenditures during the quarter, net expenses were trimmed, which helped the carrier squeak out a net return of $2 million for the quarter, compared with a loss of $331 million last year.

Much of that capital expenditure increase was targeted at Sprint Nextel’s Network Vision upgrade program, which includes the rollout of LTE services. The carrier said it had converted 13,500 cell sites at the end of the quarter to its new network platform, which was ahead of previous guidance. Sprint Nextel added that in 25,000 sites in total are either “ready for construction, already underway or completed,” with plans to have more than 250 markets covered with LTE services in the coming months.

Despite the troubled quarter, analysts expect the carrier’s stock price to remain unaffected in the near term as most investors are eyeing current acquisition deals. Sprint Nextel’s management said that the carrier remains on track to both acquire subsidiary Clearwire and in turn have 70% of itself acquired by Japan’s Softbank by mid-year. This despite recent attempts by Dish Network to acquire Clearwire and Sprint Nextel in separate deals.

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