February 10, 2010 / 12:22 PM / 10 years ago

Sprint revenue misses expectations, shares fall

NEW YORK (Reuters) - Sprint Nextel Corp’s (S.N) fourth-quarter revenue fell 7 percent and missed Wall Street expectations as the No. 3 U.S. mobile service charged consumers less for phone calls to help curb subscriber losses.

A woman talks on her phone as she walks past T-mobile and Sprint wireless stores in New York July 30, 2009. REUTERS/Brendan McDermid

Sprint shares fell more than 10 percent on Wednesday as investors worried about price competition hurting its margins and about a disappointing fourth quarter for prepaid services, on which Sprint depended for growth in 2009.

In the quarter, the No. 3 U.S. mobile service lost 504,000 postpaid customers who pay monthly bills, ahead of the average estimate for a loss of 668,000 from six analysts.

But the improvement came at a price, as Sprint’s most recent mobile-to-mobile call promotions hurt revenue.

“A lot of the growth is driven by the fact that they’re being more aggressive on price. Upfront you’re going to have to live with a little pain,” Piper Jaffray analyst Christopher Larsen said of Sprint.

Revenue fell to $7.87 billion from $8.43 billion, and compared with the average forecast for $8.03 billion.

Analysts also noted Sprint did not have any high-profile phone launch in the quarter, unlike Verizon Wireless, which benefited from promoting Motorola Inc’s MOT.N Droid. AT&T Inc (T.N) also saw strong growth from Apple Inc’s (AAPL.O) iPhone.

Sprint said it expects to lose fewer subscribers in 2010 than it did in 2009, but it would not say when revenue would grow again or when it would see net additions in postpaid customers, who tend to sign up for two-year service contracts.

“It is getting more competitive, there’s no question, from a pricing perspective,” Chief Executive Dan Hesse told analysts on a conference call, where he also hinted that Sprint could look at taking part in consolidation in the mobile market.

Sprint’s loss narrowed to $980 million, or 34 cents per share, for the quarter, from $1.6 billion, or 57 cents per share. Before a hefty non-cash charge, the loss was 23 cents per share, compared with the average analyst expectation for a loss of 19 cents, according to Thomson Reuters I/B/E/S.

Analysts bemoaned Sprint’s adjusted wireless profit margin of 18.2 percent, down from 21.6 percent a year ago and compared with 45 percent at Verizon Wireless and 39 percent at AT&T.

And Chief Financial officer Robert Brust told analysts on the call that margins would not improve any time soon, even as he announced plans for more cost cuts.

Sanford Bernstein analyst Craig Moffett said the margins and prepaid were disheartening even as postpaid improved.

“It’s a bit like squeezing a balloon. Any time it gets better in one part of the business, it seems to get worse somewhere else,” Moffett said.


While Brust promised that revenue would improve eventually, he warned that in prepaid, average revenue per user would fall $2 to $4 this quarter after falling $4 in the fourth quarter.

Hesse acknowledged that Sprint was seeing tough price competition from its bigger rivals, as well as from T-Mobile USA, owned by Deutsche Telekom AG (DTEGn.DE).

The CEO said some consolidation would be good for the industry, and mergers and acquisitions would be “absolutely” a way to grow if the price were right and synergies significant.

But he declined to comment specifically on Leap Wireless International Inc LEAP.O, which has hired advisers for a possible sale.

While many analysts see MetroPCS Communications Inc PCS.N as the most logical buyer of Leap, some have speculated that it could make sense for Sprint to make a bid. Moffett said Hesse’s comments mean Sprint will take a close look at Leap, which has a market value of about $1 billion.

Sprint’s bright spot in 2009 was in prepaid, where customers pay for calls in advance but do not commit to a contract. But in the fourth quarter, its iDen network added just 483,500 prepaid customers. This disappointed analysts and was well below Larsen’s expectation for 575,000.

Hesse said he would have liked to have made more progress improving customer cancellations, or churn, and promised to cut churn with attractive service prices and advanced phones.

He sees a big boost from Sprint’s plans to sell phones this year that support higher data speeds than those of its bigger rivals, using the fourth generation network being built by Clearwire Corp CLWR.O, a venture in which it has majority ownership.

“If you’re looking for one thing, it will be 4G,” he said in an interview with Reuters.

Sprint shares fell 38 cents to $3.27 on the NYSE. Its biggest rival Verizon Wireless is owned by Verizon Communications Inc (VZ.N) and Vodafone Group Plc(VOD.L).

Reporting by Sinead Carew and Tiffany Wu; editing by Gerald E. McCormick and Bernard Orr

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