AP
Sprint Nextel 1Q deficit widens, fewer subscribers
Monday May 12, 4:42 pm ET
By David Twiddy, AP Business Writer
Lower revenue, charges, flight of valuable monthly customers leaves Sprint with bigger 1Q loss


KANSAS CITY, Mo. (AP) -- Sprint Nextel Corp.'s Dan Hesse had little good news to share Monday on the eve of addressing his first shareholder meeting as chief executive of the troubled wireless carrier.

Overland Park, Kan.-based Sprint reported a larger first-quarter loss brought on by falling revenue, charges for severance and other costs and the exodus of more than a million monthly subscribers.

The company also announced it was exploring the possible sale of noncore assets, though officials didn't give any specifics.

Sprint shares fell 14 cents to $9.24 in trading Monday.

Hesse, who will speak Tuesday at the company's annual meeting in Reston, Va., continued to ask for patience as the company tries to surmount a raft of structural, technical and perceptional problems that have allowed Sprint to fall far behind rivals AT&T Mobility and Verison Wireless.

"The turnover will take many quarters, however, we are acting quickly and decisively to improve our performance," he told analysts during a conference call.

The company said it lost $505 million, or 18 cents per share, in the three months ended March 31 compared with a loss of $211 million, or 7 per share, during the first quarter of last year.

Not including a number of one-time charges, including $231 million for severance and asset impairment and $86 million in deal-related costs, the company said it earned 4 cents per share, compared to 18 cents per share in the year-ago quarter.

Revenue fell 7.5 percent to $9.3 billion from $10.1 billion a year earlier.

Analysts surveyed by Thomson Financial had expected earnings of 2 cents per share on $9.4 billion in sales.

Sprint, which has struggled since buying Nextel Communications Inc. in 2005, said its total subscriber base fell by 1.09 million to 52.8 million, including the loss of 1.07 million post-paid customers who pay a monthly bill.

That was actually smaller than the 1.2 million in post-paid losses the company had forecast last quarter.

Post-paid churn, or the measure of customers dropping service, was 2.45 percent during the quarter, an increase from the first quarter of 2007 and last quarter. Average revenue generated per post-paid user fell 6 percent from last year to $56.

"As expected, our wireless business delivered weak financial results," Hesse said. "While the business will continue to face challenges in the short term, we are making progress in methodically attacking the sources of our performance issues."

Stifel Nicolaus analyst Christopher King said in a research note he was "somewhat encouraged" by the slightly improved subscriber losses in the second quarter, but added, "the company remains a long way from being out of the operational woods, in our view."

Hesse told analysts during a conference call that he was pleased with growth in the company's wireline business, which saw revenue rise 2 percent to $1.6 billion and higher operating profit. The division is largely used to provide Internet services to the business sector.

"Wireline will gain in importance over time as traffic volumes increase and business customers become a more important element of our customer mix and our relationship with the cable companies becomes stronger," Hesse said.

Sprint also said it was exploring the possible sale of noncore assets and other moves designed to help profitability and ensure the company maintains compliance with its debt covenants.

Asked during the conference call if Sprint was looking to spin off or sell the Nextel business, which has seen the majority of customer defections because of technical issues with its iDEN technology, Hesse said the company remained "committed to our iDEN customer base" but added that, "nothing is off the table completely."

King wrote that he believed the company has discussed a sale or spinoff of Nextel.

"But we note that it would likely be a very tricky, complicated operational process, and we are very unclear as to whether or not any such plan will come to fruition over the next year or so," he said.

Last week, Sprint and Clearwire Corp. announced they had resurrected their plan to offer high-speed mobile Internet service with the help of some deep-pocketed supporters.

The two companies said they will combine their wireless broadband units to create a $14.55 billion communications company, to be called Clearwire, that will continue developing a mobile network based on WiMax technology.