RESTON, Va.—Sprint Nextel Corp. lost 188,000 postpaid customers in the third quarter as it sweated out customer credit-related issues and iDEN customer losses.
Overall though, Sprint Nextel came out with positive customer numbers due to another strong quarterly performance from its Boost Mobile L.L.C. sub-brand. The carrier gained 216,000 direct prepaid subscribers from Boost; 177,000 wholesale subscribers, which are typically its mobile virtual network operator partners; and 28,000 customers through its remaining independent affiliates. Those numbers, minus the carrier’s 188,000 postpaid losses, result in an overall net subscriber gain of 233,000 customers.The figure was roughly in line with analysts’ expectations. Sprint Nextel said that it had made gains in postpaid CDMA subscribers, but those gains were offset by losses of postpaid iDEN users.
While Boost’s customer additions were robust, the brand’s operational metrics were weaker than usual. The prepaid service reported average revenue per user of $33, down $1 from last quarter and down $3 from the first quarter of this year; meanwhile, its churn rate jumped to 6.8 percent, an increase of 13 percent from the previous quarter. Sprint Nextel cited “increased competition” for the rising churn at Boost.
Sprint Nextel’s postpaid churn rate increased to 2.4 percent, up from the 2.1 percent it reported in both the second quarter of 2006 and the third quarter of 2005. Its gross additions were around 3.8 million, compared with 3.5 million pro forma in the year-ago period and 3.8 million in the second quarter of 2006.
“In the third quarter we took some actions to improve the quality of the customers coming into our business, and this is constraining our near-term growth,” said Gary Forsee, president and chief executive officer of Sprint Nextel. “We have established an intense focus on execution across the company, and I am confident this will produce stronger customer growth and loyalty, improved margins and increased shareholder value over time.”
John Byrne, an analyst with industry advisory firm Technology Business Research, estimated that between the gross additions and the increase in churn, the “iDEN subscriber base, not counting customers it acquired from Nextel Partners, stands almost exactly where it was at the time the Sprint Nextel acquisition was completed.” He went on to note that within the same time frame, Verizon Wireless and Cingular Wireless L.L.C. have added 7 million and 3 million net new postpaid users, respectively.
Byrne added that Sprint Nextel “is likely to see continued [iDEN] defections.” He said that, as the company enters the next phase of its rebanding effort, it would “face continued network capacity constraints in many of the largest US markets in 2007. This will create a dampening effect on growth initiatives in 2007.”
The company’s data ARPU, which increased 74 percent from the year-ago period to $7.75 among postpaid customers, “bodes well for Sprint Nextel in the long-term, but there are a lot of moving parts that the company needs to get a handle on before it is truly able to take advantage of its leadership position in mobile data,” Byrne concluded.
Sprint Nextel reported consolidated net operating revenues of about $10.5 billion, up 34 percent from the year-ago period. Consolidated capital spending increased by 75 percent compared with the third quarter of 2005 to $1.8 billion. In wireless specifically, the company reported that pro forma net operating revenue increased 12 percent year-over-year, but that once adjusted for affiliate acquisitions its pro forma net operating revenue increased about 4 percent. Wireless capital spending was up 17 percent pro forma compared to the same period last year, and adjusted wireless operating income was up 8 percent pro forma.
Sprint Nextel’s stock was up more than 5 percent in trading after the news.
