It was another challenging quarter for Sprint Nextel, which added only 233,000 net new subscribers in the third quarter, ending with 51.9 million total subscribers.
The net adds pale in comparison to the 1.4 million net adds that Cingular Wireless reported for the quarter last week, but Sprint is still trying to recover from what some observers consider to be missteps since its August 2005 merger with Nextel Communications. Earlier this month, long-time wireless executive Tim Donahue, executive chairman of the board, announced that he will retire at the end of this year. In August, COO Len Lauer was ushered out the door.
The company took action during the quarter to improve the quality of its new customers; some tactics were outlined by Lauer after the lackluster second-quarter results and before his departure. Sprint President and CEO Gary Forsee says the company continues to make changes, such as restructuring sales, service and distribution and augmenting the product portfolio. For example, Sprint finally is adding the Motorola RAZR and other models to its line-up.
According to the company, the breakdown of net additions includes a loss of 188,000 postpaid subscribers, a gain of 216,000 Boost subscribers, a gain of 177,000 wholesale subscribers and a gain of 28,000 net subscribers from affiliates. The company also acquired 458,000 postpaid customers though the purchase of UbiquiTel.
Postpaid churn was 2.4 percent, increasing from 2.1 percent in the second quarter due mainly to seasonally higher CDMA network involuntary churn, higher iDEN network voluntary churn and higher-than-expected Nextel Partners churn, the company says. Boost churn was 6.8 percent in the quarter versus 6 percent in the second quarter, mainly due to increased competition.
In contrast, Cingular reported churn of 1.5 percent in the third quarter. In the second quarter, Verizon Wireless boasted churn of 1.13 percent, the same quarter the carrier added a whopping 1.8 million retail customers.
Forsee told investors in the quarterly conference call that churn is expected to dip by the first quarter.
Ticking off a list of challenges the carrier faces, analyst John Byrne of Technology Business Research (TBR) predicts that the situation will likely get worse before it gets better. “With a large drop-off in gross additions and a sharp increase in customer defections, TBR believes the company’s Nextel-branded iDEN subscriber base, not counting customers it acquired from Nextel Partners, stands almost exactly where it was at the time the Sprint Nextel acquisition was completed in August 2005,” he said in a release. During that same time, Verizon Wireless has added more than 7 million net new postpaid retail customers and Cingular has added more than 3 million, he notes.
The introduction of a hybrid CDMA/iDEN handset in the fourth quarter is designed to allow iDEN customers to continue to access the popular push-to-talk (PTT) function using iDEN while accessing high-speed data CDMA services. However, those efforts are likely to be “handcuffed” by limited handset availability and the fact that truly high-speed EV-DO service will not be available on the hybrid handsets until the first or second quarters of next year, Byrne says.
One bright spot for Sprint remains on the data front. Wireless data revenues increased 74 percent compared to the year-ago period. Direct postpaid average revenue per user (ARPU) was about $61, and data contributed about $7.75.
Separately, in its first full quarter as an independent company, Sprint spin-off Embarq reported solid third-quarter revenues of $1.61 billion. During the quarter, the company expanded the availability of its Smart Connect product, which is based on NewStep- technology, giving users the ability to transparently move calls between wireless, Wi-Fi and wireline networks. The company reported 19,000 net wireless additions in the quarter, ending with 24,000 wireless subscribers.