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Sprint Gains Subs Despite Slower Prepaid Growth

7/28/2010 11:11:44 AM Eastern
Overland Park, Kan. - Sprint posted its first quarterly gain in net new subscribers in three years during the second quarter despite a sharp drop in growth in net new prepaid subscribers and a continuing but slower decline in its postpaid subscriber base.

Sprint Nextel CEO Dan Hesse cited improved customer service and network performance for the gain and said he now expects to post positive full-year net adds. The carrier did not grow its subscriber base by relaxing credit scores, he stressed. Hesse also said the carrier posted its best-ever quarterly postpaid churn rate of 1.85 percent.

Overall, the carrier gained 111,000 net new subscribers in the quarter and 36,000 in the first half, compared with year-ago declines of 257,000 and 439,000, respectively. 

Although Sprint expanded its prepaid subscriber base, Sprint reported that growth in the number of prepaid net adds slowed significantly during the quarter and half to 173,000 and 521,000, respectively, from the respective year-ago gains of 348,000 and 1.45 million. The carrier, however, promised renewed prepaid vigor in the second half now that it has rolled out its new multibrand prepaid strategy, overcome inventory shortages in Boost prepaid phones, and rolled out the new Virgin Mobile PayLo sub brand to 40,000 locations, including Kmart and Family Dollar stores as well as drug and convenience stores. In addition, the Walmart-exclusive Common Sense prepaid brand, rolled out earlier this year in 700 Walmart stores, will expand to 1,500 Walmart stores in August.

Sales of the repositioned Virgin Mobile brand have surged more than 20 percent in stores that sell Virgin, Hesse noted.

In the postpaid segment, although the carrier posted a gain in CDMA-network postpaid net adds, those were offset by post-paid iDEN-network declines. Losses in iDEN-network postpaid subscribers drove down the total postpaid subscriber base by 228,000 in the quarter and 806,000 in the first half, but those losses were lower than the year-ago losses of 991,000 and 2.24 million, respectively. The number of CDMA-network subscribers in the postpaid segment, however, rose 285,000 in the second quarter for a 46 percent year-over-year gain, described by Hesse as the highest gain since 2001.

The carrier also posted net subscriber additions through its MVNO partners and carrier affiliates, reversing year-ago decline. Net adds hit 166,000 for the quarter, compared with a year-ago loss of 75,000. First-half gains hit 321,000, down from a year-ago 351,000.

With the overall gain in net new subscribers, Sprint's wireless operating losses shrank in the quarter by 8.6 percent to $287 million and in the first half by 29 percent to $617 million. Revenues, however, remained flat year over year for the two periods at $6.4 billion and $12.8 billion, respectively. In 2009, the carrier's wireless net operating loss was $1.96 billion, down from 2008's $2.81 billion.

During a conference call for investors, Hesse did not offer as timetable for eliminating shortages of its first 3G/4G phone, the HTC-made Evo. "HTC is working this issue," Hesse said, attributing the problem to a "global supply issue" affecting components for high-end phones, including chips and displays. In 2008 and early 2009, he explained, component suppliers took "a lot of capacity" off-line. "We could definitely sell more if we could get more," he said of the Evo.

In other comments, he acknowledged that "competitors do feel it" when Apple launches a new iPhone, but he said Sprint has "mitigated the size of the impact" over the years by launching technologically advanced phones, which this year includes the Evo.
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