Sprint losses and customer defections continue

Updated 8:32 a.m. PDT with information from the conference call.

Sprint Nextel is still losing customers, the company said Thursday as it reported a third-quarter loss.

Sprint's losses widened to $478 million, or 17 cents a share, during the quarter that ended September 30, from a loss of $326 million, or 11 cents a share, a year earlier. Revenue fell nearly 9 percent to $8.04 billion.

Results were slightly worse than analysts had expected. Analysts had been looking for Sprint to report a loss of 15 cents per share on revenue of $8.09 billion.

Sprint continued to lose customers, as it has for several quarters. But it lost fewer customers than analysts had expected. Sprint lost a total of 801,000 subscribers in the quarter. Analysts had expected the company to lose 870,000 so-called post-paid customers.

Meanwhile, Sprint competitors AT&T and Verizon Wireless added 2 million and 1.2 million customers, respectively.

That said, Sprint lost fewer customers than it has in the past quarters of 2009. In the second quarter it lost 991,000 subscribers and in the first quarter it lost 1.25 million. And Sprint's CEO Dan Hesse said during the conference call that he saw even more improvement toward the end of the third quarter due to a new service plan called Any Mobile, Anytime. This plan, which starts at $69.99 per month, allows subscribers to call any cell phone in the U.S., regardless of the carrier. The plan also comes with Sprint's Simply Everything Data plan, which includes unlimited text messaging and data services. Subscribers also get 450 voice minutes for calls to landlines.

Sprint's churn rate, or the rate at which customers dump its service, was 2.17 percent, up from 2.05 percent in the second quarter.

"We finished the quarter stronger than started it with the launch of Any Mobile, Anytime," Hesse said. "So the trajectory leaving the third quarter did improve. We are hoping that this will help us keep the base of people on our Simply Everything plans and get customers to migrate. So we think it will make a difference in churn."

Hesse explained that before Sprint launched its Simply Everything plans, which bundle, data and voice services into one flat price, its highest churn came from the customers who spent the most money every month. After it launched the Simply Everything plan, it reduced churn of these valuable customers. And now the highest churn rate are among customers who spend less money per month on services.

"We know these plans make a difference," he said. "And we are moving down the rate card, hoping to improve churn and our brand."

These new plans may help with reducing churn, but it hasn't helped the company grow average revenues per customer. In fact, customers with contracts spent on average $56 a month, about the same as they've spent for the last several quarters. Data revenue accounted for almost 30 percent of that.

Reducing churn is critical for Sprint, but Hesse also noted that it's important for the company to add new customers as well. In an effort to keep customers, Sprint has added a new touch-screen Google Android phone, the HTC Hero. And it will soon add another Google Android phone, the Samsung Moment to its line-up. It is also the exclusive carrier for the Palm Pre, at least until the end of 2009. It will add the Palm Pixito its lineup later next month. And it has launched new BlackBerry devices, including the BlackBerry Tour.

Hesse said it is important for the company to have a strong lineup of phones to compete against rivals, such as AT&T and Verizon Wireless. But adding smartphones comes at a price. In order to make devices more affordable to consumers, Sprint said it paid about $950 million to subsidize equipment, which includes high-end smartphones. A year ago it spent $700 million on equipment subsidies.

'Doubling-down' on prepaid
"Competition is getting tougher among postpaid competitors as we all go after each other's base of customers for growth," he said. "But that is why we are also doubling down on our prepaid business. Because we think there is more growth there."

Indeed, Sprint did much better in the third quarter adding prepaid customers than it did adding new postpaid, contract customers. Much of this growth was helped by Sprint's Boost Mobile brand, which includes unlimited calls and texting for a $50 a month. Sprint added about 666,000 prepaid users.

Hesse said he expects the Virgin Mobile USA service, which Sprint acquired in July, to also help grow this business. The Virgin service uses Sprint's CDMA network, while Boost uses the company's iDEN network.

"We are looking to prepaid service as a potential growth engine," he said. "But still intend to get postpaid back to growth, and to do that we must focus on churn, but we also have to add customers. You can't win the game with just defense. You need to have a two-pronged attack."

But analysts and investors question this strategy. They worry that Sprint is becoming too dependent on prepaid customers, a business which has typically been less profitable than the postpaid market.

Hesse also said he was hopeful that the company's investment in 4G wireless will begin paying off in 2010 and beyond. The company has partnered with Clearwire to build a nationwide 4G wireless network using WiMax technology. The network is already up and running in 17 markets. And Sprint is offering a dual mode 3G/4G service that provides full nationwide coverage to wireless customers today.

"Another important area of growth is in 3G and 4G data," he said. "And I think the industry's best days are ahead."