Sprint Nextel continues operational struggles

Sprint Nextel Corp. continued to show signs of turning around its customer growth challenges, saying it added 400,000 subscribers during the second quarter. While the results pale in comparison to its larger competitors AT&T Mobility and Verizon Wireless, both of which added in excess of 1 million customers during the quarter, as well as the 708,000 customers the carrier added during the second quarter of 2006, the growth was seen as a bright spot for the industry’s No. 3 carrier.
Like recent quarters, Sprint Nextel’s customer growth was on the back of its Boost Mobile prepaid service and wholesale channels that include its mobile virtual network operator partners. The carrier said it added 169,000 Boost customers during the quarter, including around 100,000 subscribers to Boost’s new Unlimited calling plan. The growth was less than half the 498,000 Boost customers the carrier added during the second quarter of 2006. Boost ended the quarter with 4.5 million total customers.
Sprint Nextel’s wholesale channels contributed 155,000 subscribers during the second quarter and ended the period with 7 million total wholesale customers on its network.
However, direct postpaid growth continued to stumble as the carrier said its 16,000 direct postpaid subscriber growth reflected a gain on its CDMA side offset by losses of iDEN customers. Sprint Nextel said it ended the quarter with 54.1 million total customers, including 25.3 million direct postpaid CDMA customers, 15.5 million postpaid direct customers on its iDEN network and 850,000 customers using the carrier’s iDEN/CDMA Powersource handsets.
Postpaid customer churn remained steady year-over-year at around 2%, while churn from its Boost operations increased from 6% last year to 6.8% this year. Postpaid average revenue per user dropped 2% year-over-year to $60, which Sprint Nextel attributed to a drop from its iDEN customers that overshadowed an increase on the CDMA side. Boost’s ARPU dropped a more dramatic 9% year-over-year to $31. Data services accounted for $9.75 of postpaid ARPU during the quarter, with CDMA data ARPU reported at $12.75.
Sprint Nextel’s total revenues increased 2% year-over-year to $10.2 billion driven by a 3% increase in wireless revenues to $8.8 billion. Despite the revenue growth, net income plunged 94% year-over-year from $291 million during the second quarter of 2006 to $19 million this year. The carrier attributed the drop to “lower contribution from operations, start-up costs associated with the WiMAX initiative and increased net interest expense.”
Sprint Nextel’s surged in early morning trading on Wednesday before settling back to around $20 per share.