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Sprint loss narrows as customer growth doubles

Sprint's financial results looked solid, despite continue subscriber losses from its Nextel business. The growth doesn't include the impact of carrying the iPhone, which launched after the third quarter ended.

Dan Hesse speaking at the CTIA Enterprise & Application earlier this month.
Roger Cheng/CNET

Sprint Nextel posted a narrower third-quarter loss as customer growth improved ahead of the company getting the Apple iPhone.

The country's third-largest wireless provider reported a third-quarter loss of $301 million, or 10 cents a share, narrower than its year-earlier loss of $911 million, or 30 cents a share. Revenue rose 2 percent to $8.33 billion.

Wall Street analysts, on average, had expected the company to lose 22 cents a share on revenue of $8.38 billion, according to Thomson Reuters.

More importantly, Sprint kept pace on its path to winning back its most valuable customers. The company added 1.3 million total net new customers, compared with 644,000 added a year ago. As in the past few quarters, much of the growth came from the prepaid and wholesale side. The company still lost 44,000 contract subscribers in the period, largely due to defections from the Nextel side of the business.

Sprint is hoping that things are poised to change for the better now that it is carrying the iPhone. CEO Dan Hesse has said that the lack of Apple's smartphone has been the primary driver of subscriber losses in the past, the company remedied that gap in its portfolio with the introduction of the iPhone 4S and cheaper iPhone 4. The devices launched after the third quarter ended, so the results will show up in the following period. The early signs are good: Sprint said the iPhone 4S broke its single-day sales for any device part way through the launch day.

The iPhone has already been able to attract new customers, Hesse said. He added that the results over the past two weeks indicate it will break the record for percentage of buyers who are new customers, which was previously held by the HTC Evo.

"The early indications are extremely encouraging," he said during a conference call to discuss its third-quarter results today.

Sprint stores now carry the iPhone. CNET/Marguerite Reardon

But Sprint paid a heavy price for the iPhone. The device is expected to be 40 percent more costly than the normal smartphone, according to Chief Financial Officer Joe Euteneuer. He also confirmed that Sprint has a four-year deal with Apple. The iPhone is expected to create $7 billion to $8 billion in additional value through new customers and fewer turnover and support costs, he said. Wall Street had been looking for a little guidance on the financial impact, a point of contention at an investor meeting earlier this month.

The company wouldn't begin to see the combined benefits of the iPhone and its Network Vision upgrade plan until 2015, Euteneuer said.

Hesse has said the high cost of carrying the iPhone--which commands the highest subsidies in the industry paid to Apple--is something he is willing to endure in exchange for customer growth.

He also announced on a conference call an agreement to work with Clearwire as both companies transition to 4G LTE technology. He said the agreement serves as a foundation to hammer out a commercial deal in which Sprint could eventually use Clearwire's 4G LTE capacity, which could happen in 2013.

Sprint spent a lot of time on the conference call talking about its potential deal with Clearwire, a reversal of its investor meeting when much of the discussion centered on using LightSquared's capacity. The comments will likely ease concern that Clearwire would get left out in the cold.

The carrier's core contract wireless service, meanwhile, continued to improve its performance, adding 304,000 customers and seeing its average revenue per user rise $58 from $55 a month. Its turnover rate, meanwhile, fell to 1.91 percent from 1.93 percent a year ago, although up from the second-quarter rate of 1.75 percent.

Sprint expects its net contract subscriber growth to improve this year from a year ago, which would require a significant jump in growth in the fourth quarter.

On the downside, it lost 309,000 Nextel customers. Sprint has been slowly weaning itself off of the Nextel business, and has vowed to shut down the iDEN network, best known for its walkie-talkie "chirps," by 2013. It also lost 39,000 PowerSource customers, who have phones that run on the CDMA network but also have access to Nextel's walkie-talkie feature.

Unlike its larger rivals AT&T and Verizon Wireless, Sprint relies on its various prepaid arms for growth. The company added 485,000 net customers in the period through various brands such as Virgin Mobile, Boost Mobile, and its low-income government-subsidized service Assurance Wireless.

The company also leans heavily on its wholesale business, in which other companies buy wireless capacity and resells it under their own brands. Sprint added 835,000 such customers in the period.

Sprint expects free cash flow to be between negative $200 million and positive $100 million for the year, down from its previous estimate as it expects to spend more on its network upgrade plan and subsidies for the iPhone.

Updated at 6:21 a.m. PT: to include additional information on the impact of the iPhone, a new deal with Clearwire, and executive comments.