1.3 million customers ditch Sprint Nextel in Q3: Analyst: iPhone partly to blame

Once again, Sprint Nextel Corp. has sent over a million of its customers running for the hills.
The carrier reported that it lost 1.3 million customers during the third quarter. Of the customers who left, 1.1 million were postpaid subscribers and 329,000 were prepaid. Those numbers were offset slightly by a 130,000 increase in the number of the carrier’s wholesale and affiliate subscribers.
So where are they running to? Kate Price, analyst for Technology Business Research Inc., believes that – similar to T-Mobile USA Inc. – Sprint Nextel subscribers drifted to AT&T Mobility for the 3G iPhone.
“Unlike T-Mobile, Sprint has the required 3G network and high-end devices to support subscriber data usage, however the company still struggles with subscriber defections to alternate carriers,” she said.
Because of the declining customer count, it’s no surprise that Sprint Nextel reported 2.15% churn during the third quarter, a bit of an increase from its 2% churn during the second quarter.
Sprint Nextel’s customer loss put the carrier’s subscriber base at 50.5 million, the lowest the carrier has reported since 2006, Price said. Of that number, 34.5 million subscribers are CDMA customers, 12.5 million are on iDEN and 1.6 million are Power Source users who use both networks.
Interestingly, Sprint Nextel recently reaffirmed its commitment to the iDEN network, brushing off rumors of a possible sale.
Sprint Nextel’s customer losses coincided with a financial loss. The carrier recorded a $326 million loss for the third quarter, a distinct change from the $64 million in net income it reported in the same quarter a year ago. Net operating revenues were also down to $8.8 billion, 3% lower than the second quarter, which Sprint Nextel said was primarily due to a lower contribution from wireless. At the quarter’s end, the carrier reported a cash balance of $4.1 billion and free cash flow of $1.1 billion. However, third-quarter debt reached $18.4 billion, leaving Sprint Nextel with $22.6 billion in total debt.
“During tough economic times, we tightly managed our business to generate and retain cash and maintain substantial liquidity while continuing to reduce debt. At the same time, we made advancements in improving operations and delivering on the promise of the Now Network,” said Dan Hesse, Sprint Nextel CEO. “Customer care metrics have improved steadily throughout the year, and external surveys are confirming we’re providing a better customer experience.”
Sprint Nextel stock was down more than 12% on the news to around $3.22 per share.
The carrier also announced an amendment to the terms of its credit agreement, which will now provide a $4.5 billion revolving credit facility. This new agreement replaces the existing $6 billion credit facility. Under the amendment, the full $4.5 billion is available until 2010 and $3 billion can be used to secure letters of credit.
In the process, Sprint Nextel also managed to pay $1 billion of its outstanding loan amount under the credit agreement.
As for the coming quarter, Sprint Nextel said it expects “continued pressure on postpaid subscribers in the fourth quarter; however, we expect that gross adds will stabilize and that churn rate will be consistent with the third quarter.”