Sprint loses customers, profit down, shares fall

By Sinead Carew

NEW YORK (Reuters) - Sprint Nextel Corp's (S.N) quarterly profit fell 77 percent as the No. 3 U.S. mobile service lost subscribers and withdrew its 2008 profit growth forecast, sending shares down 2 percent on Thursday.

Sprint, which is searching for a new chief executive, also said customer growth would stay under pressure in the current quarter after a net loss of 60,000 subscribers in the third quarter, dampening any hopes for a near-term recovery.

"Overall, I think they're pretty disappointing results," said Stanford Group analyst Michael Nelson, who expected Sprint to add 283,000 subscribers in the quarter. "The outlook looks equally disappointing with no real turnaround in sight."

Sprint's profit fell to $64 million, or 2 cents per share, from $279 million, or 9 cents per share, a year earlier.

Before items such as merger-related amortization, it earned 23 cents per share, a penny above analyst estimates according to Reuters Estimates. Revenue fell 4 percent to $10.04 billion, below the average analyst estimate of $10.23 billion.

Sprint has been losing ground to bigger rivals such as AT&T Inc (T.N) and Verizon Wireless, owned by Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L), amid customer service problems, U.S. economic weakness and its struggles integrating its 2005 purchase of Nextel Communications.

It has lost valuable postpaid customers -- who pay monthly bills -- for four quarters out of five, and it expects customer numbers to stay weak in the fourth quarter, typically a strong period due to holiday gift shopping and promotions.

"It is still a lot of pressure on postpaid subscribers," Chief Financial Officer and acting CEO Paul Saleh said in an interview with Reuters.

Sprint's chief executive, Gary Forsee, stepped down last month and the board is working as quickly as possible to find a replacement, Saleh told analysts on a conference call.

MORE PRESSURE

The company withdrew its 2008 target for double-digit growth in operating income before depreciation and amortization (OIBDA) and said it would comment on 2008 early next year.

"This is a company that understands how bad things are," said Bernstein analyst Craig Moffett, who said Sprint shares were holding up surprisingly well on Thursday.

Postpaid customer cancellation rate, also known as churn, rose to 2.3 percent from 2.0 percent in the second quarter.

Saleh said Sprint would make changes in its distribution network, which he said was not working well, and in its pricing plans as it puts retaining customers as a top priority.

"This is going to be a fight in the trenches daily. We intend to bring that churn down," Saleh told analysts.