Sprint Nextel posts 38% drop in net profit, subscriber growth slows

Sprint Nextel's already jittery investors sold off stock this morning as the company announced disappointing second-quarter results and lost out to competitors Verizon Wireless and Cingular Wireless. Shares of Sprint fell more than 14 percent as it added 708,000 customers, the majority of which were prepaid. In comparison, Verizon Wireless added 1.8 million, while Cingular added 1.5 million customers. Sprint's churn rate, at 2.1%, was higher than its competitors. In recent months, analysts have been screaming at investors to buy up Sprint's stock as it has steadily traded below its peers, saying Sprint's higher churn has been overstated. Now it looks like investors' fears have been realized. Sprint posted a 38 percent drop in net income, reporting second-quarter earnings of $370 million, or 12 cents per share, compared with 40 cents per share last year, before the company's merger with Nextel. Revenue increased just 5 percent. 

Remember when Sprint struggled after it added too many prepaid customers back in 2002? It looks to be déjà vu in 2006. COO Len Lauer told investors that it would tighten its credit policies and attempt to shift marketing away from lower-end customers to attract people less likely to cancel service. Maybe its cable partners will help. Sprint executives said during the company's conference call today that they a expect a boost in the second half of the year as its partnership with Time Warner, Comcast, Cox and Advance/Newhouse Communications kicks into gear and cable customers will have a chance to buy bundles of service that include Sprint wireless service. Sprint also plans to roll out FMC service, allowing customers to roam onto WiFi networks in the home.

Sprint did, however, lead in data services, raking in an industry high of $7.25 ARPU per month from customers for text messaging, music downloads and other services.

For more about Sprint Nextel's dismal second-quarter results:
- read this article from The Wall Street Journal (sub. req.)

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