Sprint gets back to positive subscriber growth in Q2

Sprint Nextel (NYSE:S) reported its first net wireless subscriber growth in three years in the second quarter. Nevertheless, the carrier posted a wider net loss and still lost 228,000 postpaid subscribers in the quarter.

sprint's key metrics from second quarter 2010For the quarter, Sprint posted a net loss of $760 million, wider than a $384 million net loss in the year-ago period. The company was hit with a $302 million tax-related charge.

Sprint now expects to have positive total net wireless subscriber additions during the remainder of 2010, and fewer postpaid subscriber losses in the second half of the year than in the first half. "We still have a lot of hard work," Sprint CEO Dan Hesse said.

In an interview with FierceWireless, Hesse said the company continues to make progress on a number of fronts, including in its postpaid business. "I'd say we're turning a corner," he said. "I don't want to make definitive statement that we've turned the corner."

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

Subscribers: Sprint added a net total of 111,000 wireless subscribers in the quarter. The company had net retail subscriber declines of 55,000 and net additions of 166,000 wholesale and affiliate subscribers. Sprint's postpaid losses, while still significant, are a sharp improvement from the 991,000 postpaid subscriber losses it had in the second quarter of 2009 and its 578,000 in the first quarter.

Hesse said the carrier actually had 285,000 Sprint-branded CDMA net adds in the quarter, but that the company's numbers were hurt by Helio deactivations as well as Nextel PowerSource subscriber losses that are counted as CDMA customers.

Sprint noted its CDMA network added almost 136,000 postpaid customers while iDEN lost almost 364,000 customers. The company gained a net 173,000 prepaid subscribers, much weaker than in the second quarter of 2009. The prepaid numbers include net additions of 638,000 CDMA customers, offset by net losses of 465,000 iDEN customers. Additionally, around 9 percent of postpaid customers upgraded their handsets during the quarter. The carrier had 48.2 million total subscribers at the end of the quarter.

Revenue: Total revenue fell 1 percent to $8.03 billion. Sprint said retail wireless service revenues clocked in at $6.4 billion, essentially flat from the second quarter of 2009 and the first quarter of 2010. 

ARPU: Wireless postpaid average revenue per user was around $55 for the quarter, down from $56 in the second quarter 2009 but flat sequentially. Prepaid ARPU in the quarter was around $28, down from $34 in the year-ago period and $27 in the first quarter of 2010. Sprint attributed the decline to the inclusion of Virgin Mobile and Assurance Wireless customers, who have lower ARPUs than Boost Mobile customers.

Churn: Sprint said it notched its best-ever postpaid churn of 1.85 percent in the quarter, compared with 2.05 percent in the year-ago period and 2.15 percent in the first quarter of 2010. The carrier attributed the gains to customer experience improvements. Prepaid churn in the second quarter was 5.61 percent, lower than Sprint's 6.38 percent in the year-ago period and 5.74 percent in the first quarter of 2010. Sprint said the rise was due to Virgin Mobile customers who have lower churn on average than Boost Mobile customers.

"The better-than-expected postpaid churn represents less than 100,000 customers who decided not to churn," BTIG analyst Walter Piecyk wrote in a research note. "We believe this was likely driven by the success of the Evo launch during the quarter."

Prepaid: Sprint launched multiple prepaid brands in the quarter, including the re-launched Virgin Mobile and the pay-per-minute Common Cents plan. Interestingly, Dan Schulman, Sprint's outgoing prepaid chief, said the carrier couldn't get enough Boost handsets, but that "toward the end of June we were fully in stock with Boost handsets." Hesse declined to say what specifically hampered Boost's phone inventory. "We just didn't have the inventory that we might have," he said.

Sprint expects to see continued improvement in postpaid churn and net adds as the year continues.  

Evo 4G: Sprint debuted the 3G/4G HTC Evo smartphone that runs on Clearwire's (NASDAQ:CLWR) mobile WiMAX network during the quarter. Hesse said sales of the device have been "fantastic," and that the carrier had trouble meeting demand for the gadget. "Peter Chou has heard from me probably more often than he has liked," Hesse said, referring to HTC's chief executive. Hesse also said Evo subscribers are using 3 times as much data as other Sprint smartphone users, a figure he said justified the $10 data premium charged to Evo subscribers, a fee that is applied even if those subscribers are not in a 4G service area. Hesse also said that even without Evo sales, Sprint would have achieved positive subscriber growth.

LTE and WiMAX: Hesse declined to comment on speculation that Sprint might buy Clearwire. He said the company is committed to helping Clearwire meet its 2010 goal of covering 120 million POPs, and that any decisions about network technology beyond that will be made collectively with other strategic investors and Clearwire's board. Sprint is in the early stages of a multi-mode network technology RFP, Hesse said, which might include LTE--but he said no decisions have been made. "We haven't reached any conclusions," he said in the interview. "It gives the flexibility, so that we can change or add new capabilities if we so choose."

Interestingly, Hesse also said Sprint is still considering launching a prepaid 4G service plan. "It's something we're evalutating right now," he said. "It's premature to say anything more."

For more:
- see this release
- see these key Sprint Q2 stats
- see this WSJ article (sub. req.)
- see this BTIG research note (sub. req.)
- see this FierceWireless Q2 earnings page

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