Sprint Nextel Corp. lost 188,000 postpaid customers in the third quarter as it sweated out customer credit-related issues and iDEN customer losses.
But overall, Sprint Nextel came out with positive customer growth 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.
On the postpaid side, Sprint Nextel’s 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. The carrier posted gross additions of around 3.8 million customers, compared with 3.5 million pro forma subscribers in the year-ago period and 3.8 million customers 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,” adding that as the company enters the next phase of its rebanding effort, it would “face continued network capacity constraints in many of the largest U.S. markets in 2007. This will create a dampening effect on growth initiatives in 2007.”
Sprint Nextel’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, 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.
Alltel Corp. posted solid third-quarter revenues, but its customer numbers didn’t quite meet analysts’ expectations, results that dropped the company’s stock price by more than 6 percent in Wall Street trading.
Alltel’s gross customer additions for the quarter jumped by 14 percent from the year-ago period, but it ended up with only 101,000 net new subscribers in the quarter-fewer than analysts had predicted.
Of the carrier’s 101,000 new subscribers, 75,000 were postpaid users. Alltel’s prepaid adds jumped to 26,000 customers, which the company said was an increase of almost 400 percent compared with the same quarter last year. Alltel lost about 23,900 customers as a result of divesting several markets in Minnesota, which was required as part of its acquisition of Midwest Wireless. The carrier ended the quarter with more than 11 million customers.
Alltel reported revenues of $12 billion, up 12 percent from the third quarter of 2005. The company’s net income increased by 11 percent to $402 million.
Alltel’s churn rate in the quarter stood at 2.18 percent, down from 2.37 percent in the third quarter of last year. In the carrier’s postpaid business, it recorded churn of 1.67 percent, a decline from the 1.92 percent Alltel reported in the year-ago period. However, Alltel’s ARPU crept downward about 1 percent, to $53.76.
“We are confident that the choices we are making strike the right balance between customer growth and long-term profitability,” Alltel CEO Scott Ford told analysts during a conference call.
Ford also said that Alltel would approach the future auction of 700 MHz spectrum with “serious study over the next year.”
“We have viewed that as a watershed moment for a long time, and we continue to view it that way,” Ford said. Alltel did not participate in the recent advanced wireless services auction.
This was the company’s first full quarter reporting as a wireless-only company; Alltel recently spun off its wireline business.
Independent telecom analyst Jeff Kagan said that Alltel’s performance this quarter “was good, but there were several areas of concern. The churn rate was high, and the customer adds were lower than expected.”
“It’s actually a pretty good story, but not as good as we expected,” Kagan concluded.
