Sprint Nextel Corp (S.N) posted a third-quarter loss that was narrower than Wall Street's expectations on lower marketing costs but warned that its network upgrade has been delayed by about three months.
Sprint, which agreed last week to sell a controlling stake to Japan's Softbank Corp (9984.T) for $20 billion, is working on a desperately needed network upgrade. The No. 3 mobile phone service provider, which lost more customers than expected in the quarter, has struggled for years to turn around its business as it competes against larger rivals Verizon Wireless (VZ.N) (VOD.L) and AT&T Inc (T.N).
Sprint's net loss widened to $767 million, or 26 cents per share, from a loss of $301 million, or 10 cents, in the year-ago quarter. The loss was narrower than the 42 cents per share loss expected by Wall Street analysts, according to Thomson Reuters I/B/E/S.
The narrower than expected loss was largely because of a reduction in marketing costs as the company focused less on attracting subscribers from other providers and instead pushed harder on convincing customers to move from the Nextel network, which it is shutting down, to the Sprint network, instead of moving to rival carriers.
It was able to spend about $200 less per customer to move Nextel customers to Sprint than it would have spent to add subscribers from rivals, Chief Executive Dan Hesse told Reuters.
However, Sprint plans to work harder this quarter to steal customers from rivals even though it will mean higher costs.
"There's just a lot of opportunity out there in the fourth quarter," Hesse said, noting that a lot of consumers look for new devices during the end-of-year holiday shopping season.
But even with the fourth-quarter increase in spending, Sprint said it expects 2012 adjusted operating income before depreciation and amortization to come in slightly above its target range of $4.5 billion to $4.6 billion.
"Overall, it looks pretty good," said Pacific Crest analyst Michael Bowen, adding that Sprint's lower subscriber numbers were offset by third-quarter operating income before interest, depreciation and amortization of $1.28 billion, which was above his expectation for $988 million.
Sprint said it lost 465,000 subscribers in the quarter, compared with the average expectation for losses of 361,000, according to five analysts contacted by Reuters.
The losses were mostly due to defections from the Nextel network which Sprint is shutting down in the middle of 2013.
By comparison, main rival Verizon Wireless reported 1.5 million net subscriber additions in the quarter and No. 2 U.S. service provider AT&T added 151,000 subscribers.
Hesse conceded that Sprint is losing out to Verizon Wireless because the bigger operator is much farther along with its high-speed wireless network upgrade than Sprint.
"There are some temporary advantages Verizon has due to its network," Hesse told analysts on a conference call.
To make matters worse, Sprint expects to take a quarter longer than expected to reach its target of adding high-speed services to 12,000 wireless broadcast towers.
Sprint blamed its equipment vendors for a delay of about three months to its network upgrade plans but said that it would not affect overall spending on the $7 billion project.
The company said the delay related to logistics, execution and materials but did not single out a specific vendor from its three main suppliers: Ericsson (ERICb.ST), Alcatel Lucent SA ALUA.PA and Samsung Electronics Co (005930.KS).
"Some vendors have had fewer issues than others," said Hesse, who declined to elaborate.
The delay could lead to Sprint pushing back between $100 million and $500 million in planned 2012 capital spending until 2013, Hesse said.
Sprint said it now expects full-year capital spending of less than $6 billion in 2012, excluding capitalized interest.
Hesse declined to comment on Sprint's plans for the extra cash from the Softbank deal but said the company would now have more flexibility to make sure it has enough wireless spectrum for high-speed services.
As part of the deal terms, Sprint already raised $3 billion from a convertible bond offering to a Softbank subsidiary earlier this week.
Hesse plans to stay in his role at Sprint after the deal closes in 2013. While the deal does not include any provisions for this, Softbank has indicated it wants to keep Hesse in place, the executive said.
Hesse said he had wanted to agree on the Softbank sales transaction before holding any discussions on his own future role, in order to obtain the best deal for the company.
Sprint kept its earlier target for full-year consolidated net service revenue growth of 4 to 6 percent.
Net operating revenue rose to $8.76 billion from $8.33 billion a year ago. Wall Street expected $8.8 billion, according to Thomson Reuters I/B/E/S.
Sprint shares were down 0.9 percent at $5.57 on the New York Stock Exchange at midday on Thursday. The stock has risen more than 11 percent since October 10, just before Sprint said it was in talks with Softbank.
(Reporting by Sinead Carew in New York; editing by Gerald E. McCormick, Jeffrey Benkoe, Alden Bentley and Matthew Lewis)