Sprint loses 2M subs and $1.6B in Nextel shutdown, plans nationwide 2.5 GHz LTE network
Sprint (NYSE:S) reported a steeper-than-expected net loss for the second quarter and shed more than 2 million total wireless customers in the period, with much of that related to its June 30 shutdown of its Nextel iDEN network.
Despite the weak results, Sprint is looking to the future now that SoftBank has closed its acquisition of 78 percent of Sprint for $21.6 billion, a transaction that includes Sprint's purchase of Clearwire. SoftBank is now pumping $5 billion of new capital into Sprint, and Sprint is adding Clearwire's 2.5 GHz spectrum to its LTE coverage portfolio and expects to have several thousand TD-LTE sites using that spectrum on air by year-end.
Sprint CEO Dan Hesse said on the company's earnings conference call that with the addition of scale and capital from SoftBank, spectrum in Midwestern markets from U.S. Cellular (NYSE:USM), Clearwire's spectrum and the continued rollout of Network Vision, Sprint believes it can, "over time, build a powerful network and a much stronger competitor."
Steve Elfman, president of network operations at Sprint, gave a hint of that long-term strategy when he noted during the call that Sprint now plans to deploy Clearwire's 2. 5 GHz spectrum on all 38,000 of its planned Network Vision cell sites and even more sites than that in a nationwide rollout. Previously, Sprint had said it would use Clearwire's spectrum as a "hotspot" LTE network to offload traffic in urban markets. Now, it appears Clearwire's spectrum will become a much more integral part of Sprint's long-term plans to boost overall capacity on its network. The expanded deployment of Clearwire's spectrum will continue through next year. Clearwire commands around 160 MHz of spectrum in the top 100 markets.
Here is a breakdown of Sprint's key quarterly metrics:
Network Vision/LTE: Sprint said it made solid progress on its Network Vision network upgrade program, including shutdown of the iDEN network. To date more than 20,000 Network Vision sites are on the air, compared to more than 13,500 Sprint reported with its first-quarter results. The company said the number of sites that are either ready for construction, where construction is already underway or completed has grown to more than 30,000. As part of Network Vision, Sprint has launched LTE in 151 cities, including Atlanta, Boston, Dallas, Los Angeles and Miami. Sprint said it continues to expect to cover 200 million POPs with LTE by the end of 2013.
Elfman said that Sprint has been refarming the 800 MHz spectrum it used for iDEN service for CDMA voice service and capacity, and that in the late third quarter Sprint will begin deploying LTE service on its 800 MHz spectrum. He also said that in the fourth quarter Sprint will launch smartphones that are capable using Clearwire's 2.5 GHz airwaves, and that in 2014 all Sprint devices will be able to access that spectrum (though he declined to say if the iPhone will as well).
Elfman added that as Sprint gets toward its goal of covering 200 million POPs with LTE by year end to will begin to have a "critical mass" of coverage in most of the key markets across the country. At that point, he said, "we think our marketing team will be able to market the network as having the density to compete effectively."
Verizon Wireless (NYSE:VZ) now covers 301 million POPs with LTE. By the end of the year, AT&T Mobility (NYSE:T) plans to cover 270 million POPs with LTE and T-Mobile plans to cover at least 200 million POPs with LTE.
iPhones and smartphones: Sprint activated 1.4 million Apple (NASDAQ:AAPL) iPhones in the quarter, down from 1.5 million in the first quarter and the year-ago period. Sprint said 41 percent of its iPhones sales were to new customers, down from 43 percent in the first quarter. Hesse said Sprint remains "well ahead of our committed sales volumes to Apple." Smartphones represented 86 percent of Sprint platform postpaid handset sales in the second quarter.
Subscribers: In total, Sprint lost 2.034 million wireless customers in the second quarter, with 1.3 million of them coming from the Nextel platform. Sprint recaptured 34 percent of leaving postpaid Nextel customers to its Sprint platform of its CDMA/LTE networks. The carrier also lost 520,000 total customers on the Sprint platform, including 486,000 Sprint prepaid customers. As expected, the Sprint platform lost prepaid customers as a result of planned deactivations related to regulatory changes to the Lifeline program, which impacted Sprint's lower-ARPU Assurance brand. This was partially offset by strong Assurance gross additions and continued growth in both Virgin Mobile and Boost Mobile subscribers. Sprint lost 228,000 wholesale and affiliate subscribers, mainly as a result of Sprint MVNOs deactivating inactive accounts. The one bright spot was that Sprint gained 194,000 postpaid customers to the Sprint brand.
Sprint CFO Joe Euetneuer said that the company expected prepaid growth to rebound in the second half of the year, but that postpaid growth would continue to be held back by a number of factors, including the competitive environment, seasonality and "mixed" enterprise accounts that had both CDMA and iDEN subscribers. Often those enterprises had large contracts, and while Sprint has been working to win those customers over to its CDMA and LTE networks, executives said that those mixed accounts would continue to present issues for Sprint in the third quarter.
Churn: Sprint's total retail postpaid churn was 2.63 percent, up from 2.09 percent in the first quarter and 1.79 percent in the year-ago period. Total retail prepaid churn was 5.51 percent, up from 3.26 percent in the first quarter and 3.53 percent in the year-ago quarter. Both were likely negatively impacted by the Nextel shutdown. Sprint platform postpaid churn was 1.83 percent, down from 1.84 percent in the first quarter but up from 1.6 percent in the year-ago period.
ARPU: The company said total retail postpaid average revenue per user increased to $63.59, up from $62.47 in the first quarter and $60.88 in the year-ago quarter. Sprint platform postpaid ARPU rose to $64.20, a new record, up from $63.67 in the first quarter and $63.38 in the second quarter of 2012. Total retail prepaid ARPU was $27.02, up from $26.08 in the first quarter and $26.59 in the year-ago period.
Financials: Sprint reported a net loss of $1.6 billion, wider than the $1.4 billion loss in the year-ago quarter. The result included $430 million of depreciation and charges of $623 million related to the Nextel platform shutdown. Net revenue inched up slightly to $8.88 billion, and Sprint platform wireless service revenue increased 8 percent year-over-year to highest-ever of $7.2 billion.
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this CNET article
- see this AllThingsD article
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