Sprint sheds fewer customers in fourth quarter

A recovery is slowly taking shape as Sprint Nextel narrows its losses and loses few subscribers--as rivals gain wireless customers.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read

Sprint Nextel narrowed its losses in the fourth quarter of 2009 as fewer customers dumped its service, but the company brought in less revenue than anticipated.

The company posted a loss of $980 million or 34 cents per share during the three-month period that ended December 31. This is compared to a loss of $1.6 billion, or 57 cents per share, during the same quarter a year ago.

Revenue was down to $7.87 billion from $8.43 billion during the fourth quarter of 2009. Analysts had expected the company to generate about $8.03 billion in revenue, according to a Reuters report.

Still, Sprint seems to be slowing the exodus of its valuable contract customers. During the quarter, the company said it lost 504,000 postpaid subscribers. Counting prepaid customers and wholesale customers, Sprint only lost a total of 148,000 customers during the quarter.

Even though these metrics are improving, Sprint, which is the third largest cell phone operator in the country, still lags behind competitors AT&T and Verizon Wireless. For the fourth quarter, AT&T said it added about 2.7 million new wireless customers and Verizon added about 2.2 million.

Sprint also improved its churn rate, or the rate at which customers leave its service. During the fourth quarter the company reported a churn rate of 2.11 percent. This was down from 2.16 percent in the fourth quarter last year and about 2.17 percent during the third quarter of 2009.

But Dan Hesse, Sprint's CEO, said during the conference call that he had hoped Sprint would do better in terms of retaining customers.

"I wish we would have made more progress on churn," he said. "It is our plan to improve churn in 2010."

Hesse wouldn't elaborate on where he expects the churn rate to be in 2010 nor did he say when he thought the company would have gross customer additions instead of losses.

Wall Street analysts said that Sprint had beaten their expectations for customer losses. The consensus on the Street was that Sprint would lose 610,000 post-paid customers during the quarter. But even though the company is improving its customer losses, it has come at a cost.

"Improvements in one corner of the business (post-paid) came with trade-offs," Craig Moffett of Bernstein Research wrote in a research note. "Fewer losses in post-paid came at the cost of worse-than-expected ARPU and pre-paid subscriber gains."

The biggest problem that Sprint faces right now is that the customers it is gaining and the ones it's retaining are on average spending less money every month. The company has been forced to offer deep discounts to attract customers.

Its post-paid ARPU, which is the average revenue per user, was $55 for customers who sign a monthly contract. This was down from $56 during the fourth quarter a year earlier. Sprint said that some of the loss in ARPU resulted from a decline in usage and a decline in roaming. Data revenue contributed more than $16.75 to the ARPU for monthly customers.

Sprint also didn't see the level of growth in its prepaid business that it had seen earlier in the year. Still, it managed to add a total of 434,500 prepaid subscribers. And the ARPU on these services increased to $31 from $30 during the fourth quarter a year ago. The churn rate on prepaid accounts also improved. The rate was about 5.5 percent in the fourth quarter down from 8.2 percent in the fourth quarter of 2008.

Hesse acknowledged that the company has been forced to compete on price as rivals put pressure on the company.

"It is getting more competitive, there's no question, from a pricing perspective," Hesse said during the conference call with analysts and investors.

He mentioned that some consolidation would be good for the industry. But he didn't talk specifically about Sprint possibly acquiring any companies. There has been speculation that Sprint might be interested in Leap Wireless International, which has hired advisers for a possible sale. Leap uses the same CDMA technology that Sprint uses on its main wireless network, which could make integrating the networks easier.

Updated at 8:25 a.m. PDT with information from the conference call.