Sprint Nextel Corp. released preliminary third-quarter customer growth results below many analysts’ estimates, but noted that its integration efforts are ahead of schedule and raised the net present value of expected merger synergies.
Sprint Nextel said it expects to post 1.2 million total net customer additions for the third quarter, which ends Sept. 30, including about 1 million direct subscriber additions and 200,000 subscriber additions through affiliate and mobile virtual network operator partners. The carrier noted that the direct subscriber growth included 700,000 postpaid customers and about 300,000 prepaid subscribers, mostly through its Boost Mobile L.L.C. subsidiary.
Sprint Nextel said it expects to end the third quarter with 45 million total customers on its network.
Analysts were expecting Sprint Nextel, which launched its co-branded offering earlier this month, to add more than 1.3 million total customers during the quarter, though Merrill Lynch recently lowered its direct subscriber estimate from 900,000 customers to 800,000 customers following visits to retail channels. Merrill Lynch cited some confusion on the part of Sprint Nextel store personnel regarding newly launched rate plans, as well as continued strong growth from rival Verizon Wireless.
Despite the short-term challenges, Sprint Nextel said it now expects to post $14.5 billion in merger synergies during the next several years, which is a 20-percent increase over the original $12.1 billion in synergies the company reported last December when Sprint Corp. first announced plans to acquire Nextel Communications Inc.
Sprint Nextel noted the increased synergy target includes:
- $1.6 billion in revenue and subscriber synergies driven by cross-selling opportunities and improved customer retention.
- $3.7 billion in capital spending synergies due to elimination of a data overlay network for the iDEN platform, co-location of cell sites, and savings from information technology and billing systems.
- $2.3 billion in network operating cost savings from lower site rentals and maintenance, reduced fixed and variable access and transport costs, and elimination of duplicate staffing.
- $4.4 billion in non-network savings driven by the consolidation of information technology functions, migration of billing and customer care functions, and other general and administrative efficiencies.
- $3.5 billion in marketing, sales and fulfillment savings as a result of headcount savings, the rationalization of distribution channels, greater volume discounts on devices and other scale benefits.
Sprint Nextel added that it expects a combination of continued growth in demand for wireless services and the synergy targets will produce adjusted earnings before interest, taxes, depreciation and amortization margins of 40 percent or more by 2008.
Sprint Nextel also updated its capital expenditure guidance, saying it now expects to spend $5.6 billion on wireless and long-distance investments this year plus an additional $900 million on re-branding its iDEN network. Capex for 2006 is targeted at $6 billion plus an estimated $1 billion for iDEN re-branding. Sprint Nextel has said it plans to support the iDEN network through at least 2010.
The carrier added that it is still on track to increase the availability of high-speed CDMA2000 1x EV-DO services from the current 20 metropolitan areas to around 60 metro areas by the end of the year. Sprint Nextel added that it also is on schedule to cover 150 million potential customers by early 2006 and begin rolling out EV-DO Rev. A enhancements beginning in 2007. The Rev. A enhancements are expected to dramatically improve uplink network speeds and in turn support Voice over Internet Protocol services, including a gateway between Sprint Nextel’s CDMA-based ReadyLink and iDEN-based Direct Connect walkie-talkie services.
