Sprint clings to No. 3 carrier spot in Q1, as tablet customer additions are offset by phone losses

Sprint (NYSE: S) edged out T-Mobile US (NYSE:TMUS) and retained the title of the No. 3 U.S. wireless carrier in the first quarter, remaining ahead of its rival for at least another quarter. Sprint added 1.2 million total customers in the period and though it lost postpaid handset customers it pared back those losses compared to earlier quarters.  

Sprint has been trying to stop its subscriber losses with expanded distribution, discounted offers and a slow but steadily improving network.   

At the end of the first quarter Sprint had 57.14 million total customers compared to T-Mobile's 56.84 million, a difference of just 305,000 subscribers. Sprint CEO Marcelo Claure has maintained that it does not matter if T-Mobile surpasses Sprint in total subscribers because Sprint is focused on providing value and improving the quality of the customer experience. [click to tweet]

In the last few weeks, Sprint has more than doubled its company-owned retail footprint by opening 1,435 Sprint-/RadioShack co-branded stores and expects to have the "store-within-a-store" retail model fully in place over the next couple of quarters. The company also launched "Sprint Direct 2 You," in which Sprint-trained employees will travel to customers' homes or businesses to set up new phones for them when they are upgrading.  

During Sprint's quarterly earnings conference call, Claure said that about 500   RadioShack stores have been converted to the Sprint "store-within-a-store" model, in which Sprint is taking up half of the retail space. The rest of the stores will follow, Claure said. He said he does not think they will be as productive at producing subscriber additions for Sprint as its company-owned retail stores, but noted that these stores cost less to operate.

Sprint also is continuing to offer to cut the service bill in half of customers who switch from AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ). Claure said this strategy has helped Sprint gain market share and customers continue to find that Sprint's own plans are often cheaper than just having their bill cut in half.

Claure said Sprint is not happy that it lost postpaid phone subscribers, but pointed to the progress Sprint has made in that area. He said the carrier aims to get back to positive postpaid phone additions in the next two quarters. Sprint CFO Joe Euteneuer said on the call that Sprint's wireless operating revenues will continue to take a hit until Sprint starts adding postpaid phone connections.

Here is a breakdown of Sprint's key quarterly metrics:

Subscribers: Sprint said it added 1.2 million total customers to its Sprint platform of CDMA and LTE networks in the first quarter, up from a net loss of 383,000 in the year-ago period. This marked the most Sprint customer additions the company has recorded in three years. Overall, the company was net port positive for the first time in nearly three years in the first quarter, meaning Sprint attracted more customers from competitors than it lost to competitors.

The carrier added 211,000 postpaid customers, compared to a net loss of 231,000 in the prior year quarter. The year-over-year improvement was due to both higher prime credit quality gross additions and lower churn, Sprint said. Yet Sprint lost 201,000 postpaid phone customers in the quarter, though that was lower than the 205,000 postpaid phone customers Sprint lost in the fourth quarter of 2014 and the 693,000 it lost in the year-ago period. Sprint added 349,000 postpaid tablet customers in the first quarter.

Sprint notched 546,000 prepaid net customer additions, compared to a net loss of 364,000 in the year-ago quarter. Sprint said the year-over-year improvement was mostly due to growth in the Boost Mobile brand.

Sprint added 492,000 wholesale customers in the quarter, up from 212,000 additions a year ago, thanks in a large part to connected devices.

ARPU: Sprint reported retail postpaid average revenue per user of $56.72, down from $62.98 in the year-ago period. However, Euteneuer said that Sprint's average billings per user, when taking into account equipment installment plan and leasing billings it receives from customers, was $61.71, down 4 percent year-over-year due to a higher mix of tablet sales in the quarter.

Financials: Sprint said it had total revenue of $8.3 billion in the quarter, down 7 percent year-over-year, as the carrier took in lower wireless service revenues mainly because customers shifted to lower rate plans associated with device financing options. Sprint said its revenue was aided by higher equipment revenue. Like other carriers, Sprint has seen a shift from service revenue to equipment revenue as more customers have adopted equipment installment plans and phone leasing.

Sprint reported consolidated adjusted EBITDA of $1.7 billion, which was down 5 percent from the year-ago quarter, as lower service revenues were partially offset by lower net subsidy expenses. Sprint also saved money thanks to the completion of its 3G and voice network upgrades.

The carrier posted a net loss of $224 million, larger than the loss of $151 million a year ago.

Churn: Sprint said postpaid churn fell to 1.84 percent, down from 2.11 percent in the year-ago period and 2.3 percent in the fourth quarter. Sprint said it has reduced postpaid churn by increasing credit standards, improving its handset lineup and improving the network experience. The company has also placed greater emphasis on Net Promoter Score (NPS), a measure of customer loyalty, by establishing a chief experience officer dedicated to improving this metric and by linking NPS improvement to every employee's compensation. Sprain said it reported the best sequential improvement in Sprint platform postpaid voluntary churn in nearly 11 years. The company also said its NPS improved from a negative score in mid-2014 to the highest level in nearly two years in March.

For more:
- see this release
- see this presentation (PDF)

Special Report: Wireless in the first quarter of 2015

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