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Sprint's Nextel defection drives 415,000-subscriber loss in Q1

Sprint slightly narrowed its loss as customers on the Nextel side of the business continue to drop off ahead of the network shutdown. The company added 1.5 million iPhones in the quarter.

Sprint CEO Dan Hesse speaks at the Competitive Carriers Association trade show in New Orleans earlier this month.
Maggie Reardon/CNET

Sprint continues to undergo the painful and awkward transition of shutting down its Nextel network.

The Overland Park, Kan., wireless provider on Wednesday reported a first-quarter loss of $643 million, or 21 cents a share, compared with a loss of $863 million, or 29 cents a share, from a year ago.

Revenue, meanwhile, edged up slightly to $8.79 billion from $8.73 billion a year ago.

The results compare to the loss of 33 cents a share and revenue of $8.71 billion that analysts had projected, according to Thomson Reuters.

Sprint lost a net 415,000 subscribers in the period, primarily driven by the departure of 771,000 Nextel customers, but also by the weaker Sprint business, which only saw a net 12,000 new subscribers sign up for the business. The company plans to shut down the Nextel network by the end of the second quarter, and has been looking to convert customers over to the Sprint service. In the quarter, it reported a 46 percent recapture rate of Nextel customers.

CEO Dan Hesse warned that the remaining 1.3 million Nextel customers will definitely have to leave the service this quarter.

Sprint made a big and costly bet that carrying the iPhone would help turn its customer numbers around. The company sold 1.5 million iPhones in the period, compared with 4.8 million iPhones sold by AT&T and 4 million iPhones sold by Verizon Wireless.

The company said that 43 percent of its iPhone customers were new to Sprint, suggesting that it was taking some share from the other carriers. Neither AT&T nor Verizon shared what the percentage of new customers were from their iPhone gains. In total, Sprint sold 5 million smartphones in the period.

Sprint is in a state of flux. The company has agreed to merge with Japanese carrier SoftBank in a deal that would inject much-needed capital for its network deployment plans. But Dish Network has stepped in with a sweeter, $25.5 billion bid, that founder Charlie Ergen called its "Seinfeld" move, or the deal that ties together everything it has been working for.

Hesse declined to provide too much information on the potential deals, only saying that the company was on track to close its merger with SoftBank, as well as its acquisition of Clearwire and assets from U.S. Cellular, by July 1. He reiterated that a special committee was looking at the Dish offer.

At the same time, Sprint, which lags far behind its larger rivals AT&T and Verizon, face a reinvigorated competitor in T-Mobile. T-Mobile recently shed the notion of contracts and phone subsidies and introduced its own version of the iPhone, giving it a competitive offering against Sprint, which also runs several prepaid businesses under the Boost Mobile and Virgin Mobile brands.

The core Sprint service actually performed well in the seasonally weak first quarter. Its service revenue of $7.1 billion increased 9 percent from a year ago. Its contract business saw the customer turnover rate fall to 1.84 percent from 2 percent a year ago, suggesting an improvement in customer loyalty. The average revenue per customer also edged up by more than $1 to $63.67.

Chief Financial Officer Joe Euteneuer, however, warned that the turnover rate would continue to be weak over the next few quarters as the company deals with Nextel, improves its 3G network coverage, and expands its 4G LTE network. The company expects to cover 200 million people with its LTE network by the end of the year, although its current deployment lags behind AT&T and leader Verizon.

The Sprint prepaid businesses, under Boost and Virgin, added 568,000 net new customers in the period.

"It's one of the reasons we decided to double down on prepaid," Hesse said on a conference call with analysts.

Updated at 6:21 a.m. PT: to include additional background and executive comments.