Sprint bleeds customers; sells 1.5 million iPhones

Sprint Nextel's losses widened in the third quarter as the company prepares to shut down its older Nextel network. It also reported it sold 1.5 million iPhones in the quarter.

The company, which is being bought out for $20 billion by Japan's Softbank, reported today that it lost $767 million, or 26 cents per share, compared with a loss of $301 million or 10 cents per share in the same quarter a year ago. Net operating revenue was up for the quarter to $8.76 billion from $8.33 billion during the third quarter last year. Analysts had expected revenue of around $8.8 billion.

The carrier added 410,000 new contract-based customers on its Sprint network, but lost 866,000 on the Nextel network, which the company is closing as part of its Network Vision program. About 516,000 of the old Nextel customers, were converted to Sprint. This means that Sprint actually lost customers for the quarter. The company reported a total loss of 456,000 contract customers during the quarter.

Still, the company managed to gain prepaid customers. And it actually reported its best quarterly postpaid and prepaid churn rate, which is the rate at which customers leave its service. The prepaid churn rate was 2.93 percent, compared to 3.43 percent last year. And the contract customer churn rate was 1.88 percent, compared to 1.91 percent a year ago.

Also, on the customer front, Sprint said that it concentrated much of its resources this quarter to recapturing Nextel customers. As the company winds down its older 2G iDEN Nextel network to use the 800 MHz spectrum for CDMA and LTE services, the company says it's been focusing on retaining those customers.

During the conference call with analysts and investors, Dan Hesse, Sprint's CEO said this was a much more cost-effective way to gain new customers for the Sprint network, rather than going out to acquire new customers. He said the company has been successful in this effort, and Sprint reported that it has recaptured 59 percent of its Nextel customers and put them on the Sprint network. This is in comparison to a 27 percent recapture rate for Nextel customers the company had reported in last year's third quarter.

Sprint said it sold a total of 1.5 million iPhones during the quarter. That compares with 4.7 million new iPhones that AT&T activated during the third quarter and 3.1 million sold by Verizon Wireless. Sprint says that 40 percent of its iPhone sales were to new customers.

Nearly half of the new iPhone additions are new customers, Hesse said. iPhone customers may be more costly to obtain due to the high subsidy cost associated with the phone, but Hesse noted that they tend to spend more and have fewer service issues. They are also loyal customers. And he expects this to pay off for the company in the future.

A good portion of the financial losses that Sprint reported can be attributed to the shuttering of its Nextel network, which it acquired when it bought Nextel in 2005. The company has had to ramp up spending to transition customers off the Nextel network and to build its new infrastructure that will include support for 4G LTE service.

As a result, it's been racking up losses in recent quarters as it prepares for the shutdown of the iDEN network. Sprint has also been struggling to make up for the cost of offering the iPhone. The company has committed to buying $15.5 billion worth of iPhones over the next several years.

Earlier this month, Japan's Softbank offered to buy 70 percent of Sprint for $20.1 billion in cash. The deal, which is expected to close in 2013, is expected to boost Sprint's chances in the U.S. against rivals AT&T and Verizon Wireless. Softbank, which has already rolled out 4G LTE in Japan, is expected to make an aggressive push with the technology in the U.S. on Sprint's network.

Even though Hesse declined to speak specifically about the Softbank deal during the company's conference call, he noted that the additional financial support that Softbank will likely provide will help the company compete with rivals AT&T and Verizon. In particular, it should help Sprint acquire more spectrum either through auctions or via private deals to ensure it has the resources to compete in the new 4G LTE market.

"There are scale advantages that we have had to mitigate (when it comes to AT&T and Verizon,)" he said. "We have been constantly playing catch up. And we've been good at that. But with the additional financial resources, we'll be able to do it even more quickly."

Sprint currently has 32 markets covered with 4G LTE and it has construction of LTE going on in 200 cities around the U.S. But the company is far behind competitors, Verizon, which now covers 400 markets with LTE and AT&T, which operates in more than 60 markets.

Updated 6:49 a.m. PT:This story has been updated with details and comments from the company's third quarter conference call.