Sprint Nextel (NYSE:S) is shifting its focus to the future and its CDMA and LTE networks as it nears the shutdown of its Nextel iDEN network, scheduled for the middle of the year. As it has in the past several quarters, the company reported relatively strong metrics for its "Sprint platform" (CDMA and LTE) while losing subscribers from its legacy Nextel (iDEN) network.
Click here for key slides from Sprint's first quarter earnings presentation.
Questions continue to swirl about whether Dish Network (NASDAQ: DISH) or Japan's SoftBank will gain control of Sprint, and a special committee of Sprint's board is considering whether Dish's $25.5 billion offer is superior to SoftBank's plan to buy 70 percent of the company for $20.1 billion.
Sprint CEO Dan Hesse said on the company's earnings conference call that Sprint still expects its deal to buy spectrum from U.S. Cellular (NYSE:USM), its bid to take control of Clearwire (NASDAQ:CLWR) and the SoftBank deal to close by July 1. He said that despite all of the deal-making, Sprint's management hasn't "taken our eye off of operations" and Sprint will continue to focus on executing it business strategy and Network Vision network modernization plan.
Here is a breakdown of Sprint's key quarterly metrics:
iPhone: Sprint activated 1.5 million Apple (NASDAQ:AAPL) iPhones in the quarter, down from 2.2 million in the fourth quarter of 2012, and the same as the 1.5 million it had in each of the first three quarters of 2012. Sprint said 43 percent of its iPhones sales were to new customers, higher than the 38 percent from the fourth quarter.
To put those numbers into perspective, AT&T Mobility (NYSE:T) activated 4.8 million iPhones in the first quarter and Verizon Wireless (NYSE:VZ) sold 4 million iPhones in the quarter. Both companies are about twice the size of Sprint in terms of subscribers.
In terms of all smartphones, Sprint sold 5 million smartphones in the quarter (AT&T sold 6 million, in comparison). Sprint said 75 percent of total retail Sprint platform handset sales and 86 percent of its Sprint platform postpaid handset sales were smartphones.
Network Vision: Sprint beat its target of having 12,000 cell sites on air by the end of the quarter as part of its Network Vision project, which includes the deployment of its LTE network and enhancements to its CDMA network. The company currently has more than 13,500 Network Vision sites on air compared to more than 8,000 reported on Feb. 7.
Steve Elfman, president of network operations at Sprint, said zoning is complete at more than 32,000 Network Vision sites and construction is ready or underway at 25,000 sites. Elfman said Sprint has started turning on CDMA voice on its 800 MHz spectrum, which was previously used for the iDEN network, and that Sprint plans to deploy LTE on 800 MHz in the fourth quarter.
Sprint expects to cover 200 million POPs with LTE by the end of the year, depending on backhaul availability, which is significantly lower than Sprint's original goal of having 250 million POPs covered with LTE by year's end. That target also now puts Sprint on the same pace as T-Mobile USA, which plans to have 200 million POPs covered with LTE by the end of the year. Sprint did not provide an update on how many POPs it currently covers with LTE.
Interestingly, Hesse said that, assuming the Clearwire deal closes by mid-year, Sprint can begin launching devices in the late third quarter that take advantage of TD-LTE technology on Clearwire's 2.5 GHz spectrum.
Subscribers: Overall, the company lost a net 415,00 wireless subscribers as losses on the Nextel network outweighed gains Sprint made on the Sprint platform. Sprint said it gained a net of 12,000 Sprint platform postpaid customers, down from a gain of 401,000 in the fourth quarter and 263,000 in the year-ago period. The company's subscriber numbers were boosted by Sprint platform prepaid gains, however, as Sprint added 568,000 prepaid customers to the platform, which was up from 525,000 prepaid additions in the fourth quarter but down from 870,000 in the year-ago quarter.
Another hit came in the form of wholesale customer losses, which totaled 224,000 in the first quarter of 2013. When Sprint reported a loss of 243,000 net wholesale customers in the fourth quarter, Sprint CFO Joe Euteneuer said it was primarily due to wholesale customers eliminating inactive accounts in the fourth quarter and regulatory changes related to the Lifeline program for low-income customers. Euteneuer said at the time that wholesale customer losses would likely continue into the first half of 2013 before rebounding in the second half.
Overall, the Sprint platform gained a net of 356,00 customers in the first quarter, but those gains were wiped out by continued defections from the Nextel platform. Sprint lost a total of 572,00 Nextel postpaid customers and 199,000 Nextel prepaid customers for a total loss of 771,000 iDEN subscribers.
The company said it was able to "recapture" 46 percent of leaving postpaid Nextel customers and move them to its CDMA network. Sprint has been 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). Other carriers, most notably AT&T, have been trying to capture these leaving iDEN subscribers with their own push-to-talk and enterprise-focused offerings.
Euteneuer said Sprint's recapture rate in the second quarter for leaving Nextel postpaid subscribers would likely be in the range of 30-40 percent. Both he and Hesse noted that the company's Sprint platform churn may be impacted in the second quarter as Sprint platform customers who still have Nextel lines decide to leave Sprint altogether as the iDEN network is shut down. The executives said these are mainly large enterprise accounts, which make up the majority of remaining iDEN customers.
Sprint ended the first quarter with 53.9 million customers on its Sprint platform, including a record 16 million prepaid customers. The company ended the period with 1.31 million remaining Nextel customers.
Churn: Sprint's total retail postpaid churn was 2.09 percent, down from 2.18 percent in the fourth quarter but up from 2.10 percent in the year-ago period. Sprint's total retail prepaid churn was 3.26 percent, a new record, down from 3.30 percent in the fourth quarter and 3.61 percent in the year-ago period.
ARPU: The company said total wireless postpaid average revenue per user increased to $62.47, up from $61.47 in the fourth quarter and $59.88 in the year-ago quarter. Sprint platform postpaid ARPU rose to $63.67, the highest ever, up from $63.04 in the fourth quarter and $62.55 in the first quarter of 2012. Total retail prepaid ARPU was $26.08, down from $26.69 in the fourth quarter and $26.82 in the year-ago period.
Financials: Sprint reported a narrower net loss of $643 million, down from $863 million in the year-ago period. Total revenue edged up slightly to $8.79 billion from $8.73 billion in the year-ago quarter. Sprint reported Sprint platform wireless service revenue of $7.1 billion, its highest-ever and a nearly 9 percent year-over-year increase. The company's operating profit margin in wireless, excluding costs such as depreciation and amortization, was 19.2 percent in the first quarter, up from 14.6 percent in the year-ago period. Analysts had estimated a margin of 14.7 percent, according to Bloomberg.
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