Sprint Sees Wider Loss as Palm Pre Ramps Up

Initial sales of the Palm Pre weren’t enough to stem the tide for Sprint, which reported a continued exodus of subscribers and falling revenues that dropped by an expected 10 percent during the second quarter.

The nation’s third-largest carrier posted revenue of $8.1 billion, down from $9.05 billion for the same quarter last year. That led Sprint (NYSE: S) to a net loss of $384 million, or $0.13 per share, compared to $344 million or $0.12 in a year ago.

Minus charges, Sprint’s loss would have narrowed to $0.04 cents per share, wider than Wall Street estimates of a $0.01 per share loss, according to Reuters Estimates.

Wireless revenue remained flat at $6.4 billion, while Sprint’s year-over-year wireless service revenues declined 9 percent. Average monthly revenue per user (ARPU), a key benchmark for wireless companies, remained flat among subscribers.

Customer losses continue

Sprint reported 991,000 post-paid customer defections, though the loss in subscribers shows incremental improvement over the 1.25 million Sprint lost during first quarter.

The company reported 48.8 million wireless customers at the end of the second quarter, including 34.4 million post-paid subscribers, 5 million prepaid subscribers and 9.3 million wholesale and affiliate subscribers.

In contrast, Sprint’s larger rival AT&T (NYSE: T) added 1.4 million customers in the second quarter, while Verizon (NYSE: VZ), the nation’s largest mobile player, earned 1.1 million.

Sprint has hemorrhaged about 7 million subscribers over the past seven quarters and is still trying to catch up to AT&T, which holds the lucrative exclusive contract for the Apple iPhone, and Verizon Wireless, which has several popular BlackBerry handsets and Android smartphones on tap — and is also set to gain the Palm Pre by early next year.

Reasons for optimism

While Sprint’s numbers appear grim, executives were upbeat about the overall uptick in the business, the improvements made in customer service as Sprint undergoes an image makeover, and the accolades received for network performance from third-party evaluations.

CEO Dan Hesse said the quarter was Sprint’s best out of the previous seven, and pointed out that polishing up the company’s image will take time.

“We are improving gross adds significantly over the last three years. A big element is, in 2006 and 2007, the hit the brand took with service issues, we’ve gone a long way in fixing that, but it takes a while for perception to catch up to the reality, it’s gradual, there’s no silver bullet,” he said.

One bright spot in the company’s portfolio proved to be its Boost Mobile unit, which offers unlimited prepaid calling plans, as Sprint said it added 938,000 prepaid customers in the quarter. The company yesterday announced that it would be buying Virgin Mobile, another player in prepaid mobile, to further capitalize on the success that Boost is experiencing.

Pre performance

Analysts had also been eager to see how sales of the Palm Pre, which launched June 6, would impact Sprint’s bottom line. Hesse said he’s optimistic it will spark growth across the board now that distribution is being more widely rolled out.

“With respect to the Pre, we’re not disclosing specific numbers yet, but early on our expectation was that a high percentage would be upgrades from existing customers,” he said during today’s earnings call. “But now we’re beginning to open distribution, there’s more availability to non-Sprint store locations, so we’ll be watching to see what mix of [new customers versus upgrades] is there.”

Sprint executives acknowledged that the launch of Apple’s (NASDAQ: AAPL) iPhone 3GS and its price cut on the older 3G to $99 might dampen sales of the Pre for a short time. But they remained confident that Sprint can compete in the long run.

“The good news is that the Palm Pre did very well, and now we’re increasing distribution,” Hesse said. “From what we can tell, I think more people are interested in the new device than they are in the $100 device, largely the customer looks at what they pay over two years, and for AT&T, $100 is a drop in the bucket.”

Despite the customer defection in the second quarter, Sprint said it predicts the total subscriber losses for the year to be less than in 2008, given its strong product offerings.

“There are some seasonal issues for the second and third quarters,” Hesse said. “That said, we expect to improve with the Palm Pre, the BlackBerry Tour and more devices planned for the second half, along with customers recognizing the value of Sprint and the quality of our network compared to the competition.

“We don’t expect to see any ‘hockey sticks,’ if you will, but we will continue to improve significantly.”

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