Nextel Communications Inc. posted stronger-than-expected subscriber numbers for the first quarter, along with financial results in line with most analysts’ lowered expectations. The carrier also reported its customer acquisition and handset upgrade costs inched up along with its usually low churn rate, and it said it plans to lay off 5 percent of its work force to reduce operating expenses.
Nextel’s operating revenues jumped from $1.1 billion during the first quarter of 2000 to $1.7 billion this year. Net loss attributed to shareholders dropped slightly from a loss of $435 million last year, or 59 cents per share, to a loss of $428 million this year, or 56 cents per share. According to Thomson Financial/ First Call, analysts expected a loss of 51 cents per share on average.
For the quarter, Nextel added 520,300 domestic wireless subscribers, ahead of forecasts of between 475,000 and 500,000 subscribers. The business-centric operator ended the first quarter with 7.2 million domestic customers.
The carrier’s international operations added 155,200 proportionate subscribers during the quarter, bringing its international customer base to more than 1 million subscribers.
“We are making solid progress building our business, differentiating our four-in-one digital service and attracting the most valuable customers in the wireless industry,” said Tim Donahue, president and chief executive officer of Nextel. “Our global subscriber growth for the quarter is one of the largest increases in our history and domestic operations finished slightly stronger than we anticipated, reflecting Nextel’s increased market share.”
Donahue said the company plans to implement a number of initiatives to increase operating cash flow profitability and strengthen its customer and partner relationships. Those plans include reducing handset subsidies, lowering sales commissions in indirect channels, driving more customers through Nextel-owned stores and the cutting about 850 jobs.
“These cost issues are being addressed at all levels of the organization, and we are taking actions designed to reduce overall operating costs, including lowering distribution costs and handset subsidies,” said John Brittain, Nextel’s chief financial officer.
Peter Friedland, wireless analyst with W.R. Hambrecht +Co., noted in a research report Nextel’s wireless Internet service signed up about 430,000 subscribers during the quarter, bringing the company’s total to roughly 1.1 million customers. The additions brought the carrier’s wireless Internet penetration to about 15 percent, highest among domestic wireless operators. By comparison, Sprint PCS has an estimated wireless Internet penetration of 13 percent.
“We attribute Nextel’s success with wireless Internet services to the company’s aggressive deployment of Internet-enabled handsets across its customer base, with nearly three-quarters of its subscribers currently with Internet-enabled handsets-as a result, Nextel has been able to aggressively upsell this product to its existing customers,” Friedland said.
While Nextel’s average revenue per user came in at an expected $71, slightly below $73 posted during the previous quarter, churn rose from 2.2 percent to 2.5 percent. Most blamed the slowing economy for the increase.
“We attribute the increased churn rate to a combination of reduced domestic business spending, including headcount reductions across many industries, as well as increased competition from Nextel’s five national competitors,” Friedland said.
Nextel also provided guidance for the rest of the year, saying it expects to add roughly 2 million subscribers this year, with full year revenues of $7 billion. The carrier also said it will deploy 1,000 fewer cell sites than originally planned for the year.
