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Sprint's trick to making money: A year of free of service

As counterintuitive as it sounds, Sprint posts its first profit in three years in the same quarter that it began giving away its service.

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Sprint added new customers in its latest quarter, though not nearly as many as a year ago.

Sprint

Sprint is finally back in black. 

The nation's fourth-largest wireless carrier has posted a quarterly profit for the first time in three years. The company also added a net 61,000 new customers in its fiscal first quarter, although that was a significant drop from a year ago. 

"This represents the progress of a turnaround journey that has delivered improvements in postpaid phone and prepaid customer growth, a return to top-line growth, and a significantly transformed cost structure," CEO Marcelo Claure said in a statement Tuesday. 

The company pulled out all the stops this past quarter. In mid-June, it began offering a year of unlimited data for free to anyone willing to switch to its service. The following week, Sprint's prepaid arm, Virgin Mobile, said it will sell a year of service for $1 -- and only offer Apple iPhones. 

Even though Claure said the offer, which wasn't broadly promoted, only contributed to 1 percent of growth, the deals underscore the fact that it's a pretty sweet time to be a wireless customer. Verizon is trumpeting a competitive unlimited-data plan, and AT&T is throwing in HBO for free. 

Sprint has the extra challenge of convincing customers that its network is better than it used to be and that the improvements are worth a second look. Hence, the aggressive promotions. 

The Overland Park, Kansas-based company lost a net 39,000 postpaid customers, or people who pay at the end of the month and are generally considered more valuable customers. That's likely due to the loss of tablet customers because the company added a net 88,000 new phone customers. The figure is well below the net 173,000 new phone customers it added in the same quarter a year ago. 

It's also a fraction of what rival T-Mobile gained in the same period. The nation's third-largest wireless carrier -- and fastest growing -- added 1.3 million total net new customers and 786,000 new post-paid phone customers. AT&T and Verizon also showed better results in the period. 

"Results were in-line, but better than many feared after a strong showing from the incumbents last week," said New Street Research analyst Jonathan Chaplin. 

Its prepaid business, likely helped by the new Virgin plan, signed up a net 35,000 new customers, compared with a loss of net 306,000 customers a year ago.

One concern is a rise in the customer turnover rate, which Chaplin noted came at a time when the rest of the industry saw record low customer defections.    

Some customers may be wary of Sprint since it's unclear how long the company may be around in its current form. Rumors continue to swirl about potential deals with everyone from wireless rival T-Mobile to cable provider Charter Communications. Sprint's parent, Japanese carrier SoftBank, is considering a Charter bid, according to Reuters. This comes after the Wall Street Journal reported in late July that Charter isn't interested in Sprint. 

Claure addressed the chatter on a conference call with analysts. "We're very encouraged by the possibilities" of merger discussions, he said but added that he had nothing to announce right now. 

Sprint posted a fiscal first-quarter profit of $206 million, or 5 cents a share, compared with a year-earlier loss of $302 million, or 8 cents a share. Revenue rose 2 percent to $8.16 billion in the fiscal quarter, which ended June 30.

Update, 5:45 a.m. PT: Adds comment from the CEO and an analyst.

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