Sprint Nextel loss widens, beats view

KANSAS CITY, Mo. — Sprint Nextel Corp., the nation’s third-largest wireless service provider, on Monday reported a larger first-quarter loss on declining revenue and a charge for job cuts announced in January.

But its adjusted results beat estimates and its shares climbed more than 12 percent in midday trading.

Sprint continued to lose subscribers but far fewer than it did in the last three months of 2008. The improvement, however, reflected a sharp increase in prepaid customers while the number of subscribers who sign up for annual contracts and are more valuable to Sprint fell.

“Total subscriber sequential improvement performance was the best in Sprint Nextel history,” Chief Executive Officer Dan Hesse told analysts during a conference call. “But we are far from satisfied with our postpaid subscriber numbers.”

The Overland Park, Kan.-based company said it lost $594 million, or 21 cents per share, during the three months ending March 31, versus a loss of $505 million, or 18 cents per share, a year ago.

Not including one-time charges for severance and other job-cutting costs, Sprint said it would have earned 3 cents per share, compared with the 4-cent loss that analysts surveyed by Thomson Reuters had predicted.

The company said it recorded a $327 million charge for severance and other costs connected with its announcement in January that is planned to cut 8,000 jobs.

The Wall Street Journal, citing unnamed sources, reported on Monday that Sprint was in final discussions to outsource management of its cellular network — and transfer between 5,000 and 7,000 U.S. jobs — to Telefon AB L.M. Ericsson.

In a telephone interview, Hesse said the company was looking at several cost-cutting ideas, including “analyzing the possibility of outsourcing certain parts of the management of our network assets but no decisions have been made and we don’t comment on speculation.”

Revenue declined 12 percent to $8.21 billion from $9.3 billion and below analysts’ expectation of $8.28 billion.

Sprint shares rose 58 cents, or 12.4 percent, to $5.25 in midday trading after trading as high as $5.48 earlier in the session.

Sprint said it lost a net of 182,000 subscribers, a marked improvement from the company’s fourth quarter, when it lost 1.3 million. However, the company said it lost 1.25 million valuable postpaid customers who sign annual contracts, an increase from the 1.1 million loss of that market in the fourth quarter.

Making up most of the difference were net gains of 764,000 prepaid customers on its iDEN network and 394,000 wholesale and affiliate subscribers.

Most of the iDEN increase came from Sprint’s low-cost Boost Mobile prepaid subsidiary, which in February began offering unlimited calling, texting and data services for $50 a month. Unlike postpaid customers, prepaid subscribers don’t sign contracts and generally generate less revenue.

“We are very encouraged by the success of the Boost unlimited prepaid offer,” Hesse said. “It has been a very long time since we reported the number of iDEN subscribers actually increased.”

Hesse said he believed U.S. consumer demand for prepaid wireless service during the first quarter matched that for postpaid service for the first time and that prepaid services could grab a larger share of the overall market in future quarters.

However, he cautioned that it’s still too early to determine whether the demand for low-cost service will continue once the economy recovers.

The company said the increase in wholesale customers came from its push to use its wireless bandwidth in new markets, including Amazon.com, which uses Sprint’s network to download products to customers’ Kindle e-book readers.

Total postpaid churn, which measures the percentage of customers starting and stopping service, was 2.25 percent during the quarter, down from 2.45 percent a year ago but up from 2.16 percent in the fourth quarter. The company said most of the sequential increase was due to deactivations among business customers but the year-over-year improvement was because of efforts to improve the credit profile of its customers.

Revenue from the company’s remaining wireline operations, which largely are used for Internet connections, fell 10 percent to $1.47 billion.

Looking ahead, Sprint said it expected an increasing number of consumers will favor cheaper prepaid service to postpaid service because of the economy. But the company said it still believed annual subscriber losses would be smaller in 2009 than the 4.6 million lost in 2008.

In a research note, Pali Research analyst Walter Piecyk said the company “continued to demonstrate some positive inflexion points” during the quarter, including a stabilizing of revenue generated per user and increases in gross subscriber additions and profit margins.

“The strong margin performance also dispels the myth that Boost Unlimited is destroying margins,” Piecyk wrote.

Barclays Capital analyst Thomas Seitz wrote in a note that he too was pleased with some of Sprint’s performance but still considered Sprint “a risky proposition” and that he didn’t expect its shares to gain much in the near future.

(This version CORRECTS adjusted earnings to 3 cent profit, sted 3 cent loss)