Sprint shed 115,000 postpaid phone subscribers in the third quarter as customers continue to leave the nation’s struggling fourth-largest carrier, though at a slower pace than Wall Street expected, while Sprint awaits an outcome in its pending merger with T-Mobile.
Sprint’s Q3 postpaid phone losses compared to net phone losses of 26,000 in the third quarter a year ago, but still beat consensus estimates of 157,000 net losses, according to New Street Research. Postpaid phone churn notably jumped to 2.06%, up from 1.84% in the year ago period, but again better than consensus expectations of 2.08%.
As noted by analysts at Wall Street firm MoffettNathanson, Sprint’s total postpaid churn of 1.98% came in lower than its postpaid phone churn.
“For most carriers, phone subscriptions are significantly stickier than non-phone subscriptions. Not so at Sprint,” wrote the team led by Craig Moffett, in a Monday note to investors.
Sprint attributed the year over year phone churn increase primarily to customers coming off promotional offers, as well as competitive pressure.
“Subscribers are not stabilizing; the pace of decline is still accelerating; it is just accelerating at a slightly slower pace than we and consensus expected,” wrote analysts at the New Street Research firm in a Monday note to investors.
As a coalition of state attorneys general fought in court to block Sprint’s tie-up with T-Mobile on antitrust grounds, the companies argued, as MoffettNathanson analysts pointed out, that Sprint’s network is inferior, leading to higher churn and the need for more competitive promotions, which in turn doesn’t produce enough high value customers to invest sufficient funding back into its network to be competitive.
“Irrespective of whether the argument does or doesn’t impact Judge Marrero’s decision, at least it has one thing going for it,” wrote Moffett. “It’s true.”
The firm noted Sprint’s wireless service revenue fell by 5% year over year, operating revenues fell by 6.1% and adjusted EBITDA fell by 17.8%.
Sprint again didn’t hold a conference call in conjunction with its earnings release, and Sprint CEO Michel Combes reiterated in a press release that a combination with T-Mobile would benefit competition.
“I continue to be impressed by the commitment of Sprint employees to deliver results during this period of uncertainty,” said Combes in a statement. “As we await a decision in the state attorneys general lawsuit, I continue to believe the merger with T-Mobile is the best way to deliver the benefits of competition to American consumers.”
Sprint’s prepaid net losses of 174,000 in Q3 were in line with the year-ago period, though churn ticked up to 4.92% compared to 4.83%. The prepaid business, which would be sold off to Dish Network if the judge sides in favor of T-Mobile, is now shrinking at an annual rate of 6.6%, according to MoffettNathanson.
Sprint ended the quarter with 54.2 million connections, including 33.8 million postpaid and 8.3 million prepaid. That compares to the end of third quarter fiscal year 2018, when Sprint counted about 32.6 million postpaid and 8.8 million prepaid customers.
The firms also noted that Sprint is burning cash but spending less capital on network enhancements, at a time when its network lags behind competitors. Year over year, Sprint’s wireless network spend was down 25.8%, according to MoffettNathanson.
Still, Sprint touted network enhancements in its earning release, saying its expanded 5G coverage to 20 million people with approximately 37,000 outdoor small cells deployed, including both mini macro and strand mounts.
Both MoffettNathanson and New Street Research reiterated the stance that the outlook for Sprint isn’t good on a standalone basis, and the company would likely need to restructure under Chapter 11 bankruptcy protection.
“We have a difficult time seeing a turnaround for Sprint equity on its own,” wrote the New Street team led by Johnathan Chaplin, adding that M&A options and spectrum sales are unlikely to solve the problem. “The company could well be headed to a restructuring if the deal breaks.”
MoffettNathanson said Sprint could emerge from Chapter 11 in a better competitive condition “than any time in the last 10 years."
“This quarter, like every other quarter, results were, well, bad. Churn remains high, EBITDA growth is negative, and free cash flow is nowhere to be found,” wrote theMoffettNathanson team.
“Absent the merger, Sprint will eventually need to either start generating free cash flow or they will have to restructure.”
How U.S District Judge Victor Marrero will decide remains to be seen, with MoffettNathanson putting the odds at 50/50 either way, and New Street saying “there is a good chance” the deal will be blocked in court.
Additional Q3 results
New Street said Sprint’s cash EBITDA of $1.54 billion “missed by a wide margin” from Wall Street expectations of $1.62 billion.
Wireless service revenue for the quarter fell 4.7% year over year to $5.2 billion.
Sprint’s equipment rentals of $1.3 billion for the quarter were down $21 million due to less devices being leased. Equipment sales decreased $217 million year over year to $1.4 billion, mainly due to the lower average selling price per postpaid device.
Sprint said postpaid phone average revenue per user (ARPU) of $50.37 remained stable.
Sprint reported total postpaid net additions of 494,000, driven by more data devices (609,000 net additions).