Sprint Nextel Earnings Show Steady Loss of Customers (S, T, VZ, DT, AAPL)

   

Sprint Nextel Corp. (S) reported earnings for the first quarter today. Specifically, Sprint earnings showed an EPS loss of -$0.29, but adjusted for a tax charge, the EPS loss totaled -$0.17, right on the average estimate. S earnings also showed revenues of $8.09 billion that were slightly ahead of the average estimate of $8.05, but 2% below first quarter 2009 revenue of $8.21 billion. This is not a good earnings report for Sprint.

AT&T (T) and Verizon Wireless, a joint venture of Verizon Communications Inc. (VZ) and Deutsche Telecom (DT), in the number of customers it serves. Sprint provides mobile phone service to about 48 million subscribers, while AT&T each served about 87 million wireless subscribers at the end of the first quarter of 2010.

Both AT&T and Verizon Wireless are adding customers, however, while Sprint is losing them. AT&T’s exclusive deal to sell Apple Inc.’s (APPL) iPhone has not only contributed to the number of customers the company has, but also to the revenue that AT&T realizes from those customers. The iPhone alone boosted AT&T’s net addition of post-paid customers by 174% in the first quarter, according research cited in the Financial Times.

Verizon Wireless has no single product that competes with the iPhone, but the company has been able to reduce its churn rate and to pump up its revenue per customer through solid smartphone offerings.

Both AT&T and Verizon Wireless lost some valuable post-paid customers in the first quarter, but Sprint has been losing these customers for years. Post-paid customers are those who sign a contract and are billed monthly.

Pre-paid customers, who load their phones with minutes as needed, are less valuable to wireless carriers because there is no guaranteed income stream. Sprint continues to add pre-paid customers at a decent rate, but revenue per customer is half that of post-paid customers, $27 compared with $55 for post-paid customers. Churn rates are also higher for pre-paid customers, 5.74% compared with 2.14% for post-paid customers.

Sprint earnings showed that S stock lost many fewer post-paid customers than it did a year ago, 578,000 in the first quarter compared to 1.25 million a year ago. It also added fewer pre-paid customers compared with a year ago, 348,000 compared to 674,000.

Sprint is counting on marketing to the push-to-talk customers that came to the company from Nextel. This intercom feature is popular on construction sites, but has virtually disappeared from office use. Whether the push-to-talk customers can really help refloat Sprint is problematic at best. After all, the construction trades have been hit hard by the slow economy and it’s doubtful that many companies are going to be excited about spending money on an upgrade to their walkie-talkies.

Not much was expected from Sprint this quarter, and the company met those low expectations. Whether it can survive by bleeding more slowly remains to be seen.

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Article printed from InvestorPlace Media, http://investorplace.com/2010/04/sprint-nextel-earnings-s-stock-vz-verizon-t-att/.

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