Sprint Posts $643M Loss Amidst Best-Ever Service Revenue, Major Changes

By Michelle Maisto  |  Posted 2013-04-24

Sprint Posts $643M Loss Amidst Best-Ever Service Revenue, Major Changes

Sprint is having a very busy 2013.

It's in the process of shutting down its Nextel network at the end of the second quarter and hustling to funnel over those departing customers to the Sprint network. It's also building out a Long Term Evolution (LTE) network that's well behind the efforts of Verizon Wireless and AT&T; trying to buy out 4G provider Clearwire, after realizing that owning half of the company wasn't quite enough to steer it as it would have liked; closing a deal with Japanese carrier Softbank that entails handing over a 70 percent share of Sprint; and, most recently, considering an offer from satellite TV provider Dish Network that would require backpedaling out of the Softbank deal. 

Then there's the not-simple priority of trying to compete in a wireless market that's growing increasingly saturated.

On April 24, Sprint shared the results of its fiscal 2013 first quarter, which reflected much of the above. 

It posted a net loss of $643 million—an improvement over a loss of $863 million a year ago. But its wireless service revenues of $7.1 billion were its highest ever, increasing by nearly 7 percent year over year.

Sprint also sold nearly 5 million smartphones, 1.5 million of which were iPhones, and 86 percent of its postpaid handset sales were smartphones. 

It posted its highest-ever prepaid subscriber total—16 million—and, at 53.9 million, said the Sprint platform subscriber based was at an all-time high.

It also "recaptured" 46 percent of departing Nextel customers, while warning that that figure is likely to drop to between 30 percent and 40 percent during the second quarter, as it braces for the departure of the final 1.3 million customers still on the Nextel network. 

"They tend to be larger business accounts—they tend to be Sprint-branded or CDMA accounts. It could be a hit we'll take this quarter," said Sprint CEO Dan Hesse.

The loss of Nextel customers, and "pressures" of the behind-schedule LTE network buildout, will likely offset seasonal benefits, executives said, though they were positive about the fact that, even with customers leaving, revenue is rising. 

The HTC One and Samsung Galaxy S 4 are coming, and—here Hesse paused to adjust his phrasing to something Apple-pleasing—"there could be an iPhone refresh sometime later this year," all of which, he said, are likely to drive upgrades.

Sprint Posts $643M Loss Amidst Best-Ever Service Revenue, Major Changes

Sprint is also in a strong prepaid position, as the market continues to shift more in that direction. Its Boost network had its best-ever number of gross adds, while Virgin Mobile had its highest net adds since Sprint acquired the company in 2009.

Virgin Mobile has lately taken aim at T-Mobile, offering its customers $100 to switch to Virgin. T-Mobile is the process of acquiring MetroPCS, which would help its prepaid position, and it's now also offering the iPhone and other high-end devices without a contract, which could additionally help it attract customers who might normally choose prepaid.

Hesse acknowledged that when a competitor gets "a device as iconic as the iPhone," there's always a temporary impact, although that would be a "second quarter phenomenon."

In response to a question regarding Sprint's goals moving forward, Hesse said, "We still think the wireless industry is a great industry to be in, but it will evolve. That's why it's important that [we have a diverse portfolio], and that we invested in prepaid. It's why the wholesale business [which can reach customer segments that the Sprint brand can't] is important."

He added that while the industry may be nearing device saturation levels, "perhaps the profitability of the industry could go up."

Improvements to churn, a reduction in calls to customer service, the addition of more devices per customer to the network and policies that make it easier for customers to upgrade can all contribute to profitability, said Hesse.

The team offered few details on the business deals Sprint is currently considering, but repeated that, as Sprint recently announced, it has formed a special committee to evaluate the Dish Network proposal.

"Whether it is, or is likely to lead to, a superior offer ... Sprint management will not take its eye off of operational performance," Hesse said.

While the Dish offer would enable Sprint to bundle Dish's television and video offerings with wireless phone service, Softbank, in addition to cash, can offer experience in LTE that would be helpful as Sprint rolls out its network.

Hesse said that Sprint's discussions with Softbank continue, and that there's much the two companies from learn from each other. While there are some geographic and cultural differences between Japan and the United States, "when you look at smartphone penetration and the attractiveness of devices, there are a lot of similarities. We can also learn from what are the differences—what works in Japan but wouldn't work here, and vice versa, and why."

With its first quarter behind it, Hesse called 2013 a "transformative year for Sprint," adding, "We've gotten off to a good start."

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