Sprint loses 423,000 subs in Q3 as Nextel shutdown looms
Sprint Nextel (NYSE:S) reported losing a total of 423,000 wireless subscribers in the third quarter as losses on its Nextel iDEN network outweighed gains the company is making on its "Sprint platform" for its CDMA and LTE networks.
Click here for key slides from Sprint's third quarter earnings presentation.
Sprint plans to shut down the iDEN network by the middle of 2013 as part of its Network Vision network modernization upgrade. In the third quarter Sprint shut down 1,300 Nextel platform sites and has taken 9,600 Nextel sites offline so far in 2012. Sprint was able to recapture 59 percent of leaving postpaid Nextel customers and move them to its CDMA network in the third quarter.
During the carrier's earnings conference call, Sprint CEO Dan Hesse and other executives did not directly address Softbank's proposed deal to purchase 70 percent of Sprint for $20.1 billion. However, Hesse said that the deal will allow Sprint to "have much more flexibility to have our spectrum assets be what we need them to be." The comments could indicate Softbank would fund Sprint spectrum acquisitions.
Hesse said that Sprint continues to have a positive relationship with Clearwire (NASDAQ:CLWR). Sprint recently increased its ownership in the company from 48 percent to 50.8 percent by purchasing about $100 million worth of Clearwire stock from Eagle River Holdings, the investment firm owned by wireless pioneer Craig McCaw. Many have speculated that Sprint may try to control Clearwire, but all Hesse would say is that Sprint still plans to use Clearwire's forthcoming TD-LTE network in 2013 and that it will continue to talk with Clearwire about its funding plans. Clearwire plans to use its 2.5 GHz spectrum to deploy 5,000 TD-LTE sites by mid-2013, which Sprint will use as a hotspot network in urban areas to offload LTE traffic.
Here is a breakdown of Sprint's key quarterly metrics:
iPhone: Sprint maintained a steady pace of Apple (NASDAQ:AAPL) iPhone activations, selling 1.5 million iPhones during the period, the same as in the first two quarters of 2012. The carrier said 40 percent of the iPhone activations were new customers. Since Sprint started selling the iPhone in the fourth quarter of 2011 it has sold 6.3 million iPhones; Sprint has a four-year, $15.5 billion commitment to Apple. Hesse said Sprint remains ahead of pace for its commitment to Apple. Sprint did not disclose how many iPhone 5s it sold in the quarter, but said it sold out of its supply.
AT&T Mobility (NYSE:T) activated 4.7 million iPhones in the quarter, including 1.3 million iPhone 5 devices. Verizon Wireless (NYSE:VZ) sold 3.1 million iPhones in the third quarter, of which 651,000 were the iPhone 5.
Hesse noted that Sprint will start selling the iPad and iPad mini later in the fourth quarter, which he said will aid in adding subscribers, as it has for AT&T and Verizon.
Network Vision: Sprint has slipped a little in its Network Vision network deployment--the carrier said it will now have 12,000 sites featuring multi-mode base stations on air by the end of the first quarter of 2013, one quarter later than expected. Steve Elfman, president of network operations at Sprint, said the carrier is working closely with Network Vision vendors Alcatel-Lucent (NASDAQ:ALU), Ericsson (NASDAQ:ERIC) and Samsung. Elfman said that the delays are largely related to logistics and delays in getting materials and equipment. However, he said that the delay will not change the cost or timing of the project, which Sprint still expects to complete by the end of 2013. Sprint said it has completed the leasing and notices to proceed with construction for almost all of the Network Vision sites it will launch next year.
Sprint has said its Network Vision upgrade will improve its CDMA network by enhancing coverage, reducing roaming costs and lowering energy and maintenance costs. But mainly it allows Sprint to deploy LTE technology. Sprint has 32 LTE markets on air now and has 200 LTE markets under construction.
According to a CNET article, which cited an unnamed source, Sprint may not launch LTE in some major markets like New York City and San Francisco until March 2013. Sprint disputed that it would be that long. In an interview with FierceWireless, Sprint CFO Joe Euteneuer said that because of the delay in launching Network Vision sites, Sprint will not hit its previous LTE coverage target of 123 million POPs by the end of 2012, but will be close to it. He said that Sprint has now started letting customers know when it has turned on LTE sites in certain markets but before the markets are fully launched to allow them to prepare for the switchover to LTE. He said customers can contact Sprint stores and customer service representatives to get updated information on how the LTE launch is progressing in their markets.
Subscribers: The Sprint platform added 410,000 net postpaid customers during the quarter, which were outweighed by Nextel platform postpaid losses of 866,000 net postpaid customers in the quarter. The postpaid results reflect the fact that Sprint recaptured 59 percent of leaving Nextel postpaid customers, or 516,000 customers, higher than Sprint had expected. Sprint expects that recapture rate to fall to 45 percent in the fourth quarter and to fall further in 2013. Sprint is currently working to migrate its iDEN users onto its CDMA network, where it offers an enhanced Direct Connect push-to-talk service developed by Sprint and Qualcomm (NASDAQ:QCOM).
Sprint added 19,000 net prepaid subscribers during the quarter, which includes net additions of 459,000 prepaid Sprint platform customers, and is offset by net losses of 440,000 prepaid Nextel platform customers. The prepaid figures reflect 152,000 net subscribers who moved from the Nextel platform onto the Sprint platform.
There are now 3.1 million Nextel subscribers left on Sprint's iDEN network, and Sprint reduced its iDEN subscriber base by 1.3 million customers in the quarter. Hesse said it's critical to move customers off the Nextel platform so that Sprint can shut down the network and harvest its 800 MHz spectrum for CDMA and LTE services.
Sprint reported net additions of 14,000 wholesale and affiliate subscribers (all of whom are on the Sprint platform) as a result of MVNOs reselling prepaid services. Sprint served around 56 million customers at the end of the quarter.
Churn: Sprint's total retail postpaid churn was 2.09 percent, up from 1.91 percent in the year-ago period and 1.79 percent in the second quarter of 2012. Sprint's total retail prepaid churn was 3.37 percent, compared to 4.07 percent a year ago and 3.53 percent in the second quarter. The prepaid churn number was Sprint's best ever.
ARPU: The company said total wireless postpaid average revenue per user increased year-over-year from $57.65 to $61.18, the highest level in six years. Sprint platform postpaid ARPU was $63.21, up from $60.20 in the year-ago period. Total prepaid ARPU was $26.77, down from $27.19 in the third quarter of 2011 but up from $26.59 in the second quarter of 2012.
Financials: Sprint reported a wider net loss in the quarter of $767 million, compared with a loss of $301 million in the year-ago period. Sprint partially blamed the decline on the ongoing dismantling of its iDEN network. Sprint's total revenue climbed 6 percent in the quarter to $8.76 billion, slightly less than the $8.8 billion analysts had expected, according to Reuters. Wireless retail service revenues clocked in at $7.2 billion for the quarter, up nearly 5 percent compared with the third quarter of 2011. Sprint said the increase was primarily due to higher postpaid ARPU as well as an increased number of net prepaid Sprint platform subscribers, partially offset by lower Nextel postpaid and prepaid subscribers.
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