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Mobile

Sprint holds on to No. 3 spot in wireless -- but at a cost

Its pitch to consumers pays off with a gain of 1.2 million customers to hold T-Mobile at bay. Still, Sprint's aggressive promotions have also brought mounting losses.

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The battle for the bronze medal has been settled, for now at least.

With two quarters in a row of subscriber gains, Sprint remains the third largest major carrier in the US. Rival T-Mobile, for all its vigorous efforts to win over consumers, continues to hold down fourth place.

But Sprint's own aggressive promotions to attract new customers have put it in the red.

In the first calendar quarter of 2015, Sprint gained 1.2 million new customers, bringing its total subscriber base to 57.1 million customers, the company announced Tuesday. During the same period, T-Mobile added 1.8 million customers to bring its total subscriber base to 56.8 million customers.

Also on Tuesday, T-Mobile unveiled its latest promotion, geared toward winning over customers from Verizon Wireless, the US carrier with the greatest number of subscribers. It's offering to give Verizon customers a free phone to play with for 14 days and then to pay the early termination fee for customers who switch over permanently.

The movement of consumers over to Sprint's side is a positive takeaway for CEO Marcelo Claure after several quarters of customer losses. Since joining Sprint last summer, has focused his attention on cutting costs and slashing pricing on services to attract new customers. He also has expanded the company's retail presence by opening more than 1,400 co-branded Sprint-RadioShack stores, and began selling products in 500 of those RadioShack stores in the quarter just ended. Claure said it was too early to say what kind of effect the new sales channel is having.

Those earlier customer losses had stemmed from aggressive competition from rivals and the poorly executed rollout of a new network. Sprint has been upgrading its network to the higher-speed 4G LTE technology, as well as ripping out and replacing its infrastructure to make it more flexible for future upgrades. It came late to the 4G LTE market, having bet initially on a competing technology called WiMax to offer faster performance.

As Sprint made these upgrades, its service suffered, which caused many customers to leave. As part of the turnaround effort, Claure has also focused network upgrades to a small group of cities to ensure these key cities have better coverage.

In a conference call with investors Tuesday, Claure talked up results from network testing firm RootMetrics, which found significant improvements in Sprint's network reliability and speeds in the second half of 2014.

"Some customers have this perception about the quality of our network, but then they realize the gap between our performance and Verizon and AT&T is not what it used to be," Claure said.

By the numbers

The 1.2 million new customers Sprint added during the first three months of the year (its fiscal fourth quarter) compares to a loss of 383,000 customers in the same quarter a year ago. In its third fiscal quarter, at the end of 2014, Sprint added 967,000 new customers.

Of the new customers added in the just-ended quarter, 211,000 were so-called postpaid subscribers, or traditional customers who are billed at the end of each month. Sprint lost 231,000 such subscribers during the same quarter a year ago. It added only 30,000 of these customers in its third fiscal quarter.

Sprint's growth largely came from its prepaid businesses. But the company also lost fewer postpaid subscribers than it has in previous quarter. Its churn rate, or the rate at which customers leave its service, was 1.84 percent. This is a significant improvement from the previous quarter's churn rate of 2.3 percent and marked the best sequential improvement in nearly seven years, the company said.

"The churn rate and the 14-day return rate tell you how customers are experiencing the service," Claure said during the call with investors. "We had a significant improvement in churn this quarter and our returns are also significantly lower."

But the company's positive subscriber growth came at a cost in the quarter. Sprint reported that its revenue fell 6.7 percent to $8.28 billion from $8.88 billion in the same quarter a year ago as it aggressively cut prices to attract new customers. Its losses also widened to $224 million, or 6 cents per share. This compares with a loss of $151 million, or 4 cents per share, in the same quarter last year.

Analysts say, though, that the most alarming metric this quarter is how quickly Sprint has been burning through its cash reserve. The company spent almost a $1 billion during the quarter after starting out the period with $3.5 billion. At that rate, it would be out of cash in a year, said Craig Moffett an analyst with MoffettNathanson Research, in a research note Tuesday.

"Sprint is to be lauded for the improvement in subscriber trends," he wrote. "But we fear it may be for naught. When a company is running out of cash, everything else is secondary."

Sprint's stock was trading slightly up less than a percent to $5.16 in midmorning trading.

Update 7:25 a.m PT: This story was updated with information from the earnings conference call and from an investor research note.