USA: Prepaid, CDMA continue to propel Sprint Nextel's growth

Sprint Nextel Corp.’s (S) multitude of networks, brands and wholesale partners lends a convoluted nature to its quarterly financial release, but at the end of the day the carrier managed to add 1.1 million new customers to its network during the first quarter of the year.
Sprint Nextel noted the growth was its strongest quarter in five years, made more impressive considering the increased competition from iPhone-weilding rivals.
The breakdown of that growth lends continued insight into Sprint Nextel’s current operations, with strong prepaid growth again compensating for continued mass defections from the carrier’s iDEN operations.
Sprint Nextel said it added 846,000 direct prepaid customers during the quarter, including 1.4 million net additions for its CDMA-based services that was offset by the loss of 560,000 prepaid customers on its iDEN network. Sprint Nextel’s CDMA-based prepaid services include Virgin Mobile USA, its recently discontinued Common Cents offering, the Assurance brand and a portion of its Boost Mobile offering. The Boost Mobile brand is also the source of the iDEN defections, showing that brands continued evolution away from iDEN and towards CDMA.
On the postpaid side, Sprint Nextel lost a total of 114,000 customers that included the gain of 310,000 customers to its CDMA network that was offset by the loss of 367,000 iDEN customers and the loss of 57,000 customers from its hybrid Powersource offering that uses both networks. Sprint Nextel noted the loss was an improvement compared with the loss of 464,000 postpaid customers during the first quarter of 2010, so there’s that.
The postpaid results were slightly behind what analysts were expecting, but prepaid managed to surpass most expectations.
Sprint Nextel also added 389,000 customers through its wholesale and affiliates, a strong increase from the 155,000 customers added during the first quarter of 2010.
The carrier ended the quarter just over 51 million total customers on its network, nearly 3 million more than at the end of the first quarter of 2010.
Helping bolster some of those results were improved customer churn results, with postpaid churn dropping from 2.15% during the first quarter of 2010 to 1.81% this year, and prepaid churn dropping from 5.74% to 4.36% over the same time period. Sprint Nextel noted that prepaid churn improvements were on the backs of its Boost Mobile and Assurance offerings that continue to outperform the Virgin Mobile USA brand.
Postpaid average revenue per user increased slightly year-over-year to $56, which the carrier attributed to its recently instituted $10 “premium data add-on” package, which the carrier charges for new smartphone activations. Prepaid ARPU also improved $1 to $28, which was attributed to the Boost Mobile offering.
Overall wireless revenues increased 5.2% year-over-year to $7.4 billion, while the company’s more limited wireline operations posted a 13.6% drop in revenues from $1.3 billion during the first quarter of 2010 to $1.1 billion this year.
Wireless expenses declined slightly year-over-year to just under $7.3 billion, resulting in an increase in wireless net income from a loss of $330 million in 2010 to a gain of $140 million this year. Wireless expenses included $1.1 billion in device subsidies, which was up 10% from the previous year, an increase the carrier attributed to increased sales of smartphones. Sprint Nextel also noted that capital expenditures increased 44% year-over-year to $449 million during the quarter as it invested primarily in data capacity.
Sprint Nextel’s consolidated net loss was nearly cut in half from a loss of $865 million during the first quarter of 2010, a loss of 29 cents per share, to a loss of $439 million this year, or a loss of 15 cents per share.
Stay tuned for additional color from Sprint Nextel’s quarterly conference call