I just called to say our revenues are down, and our subscriber base is sinking. 

That could have been the lead statement from Wednesday’s Sprint Nextel (S) earnings call.

Instead, Chief Executive Officer Dan Hesse said he was encouraged that the overall loss of subscribers slowed and that the number of prepaid customers continued to rise. But Hesse did admit that, "we are not satisfied that we lost a quarter of a million customers in the quarter."

I guess not.

The dismal earnings report included a loss of $384 million, or 13 cents per share, in the three months ended June 30. That’s significantly bigger than its loss of $344 million, or 12 cents per share, a year ago. Revenue fell 10% to $8.14 billion from $9.06 billion a year ago.

Wall Street had anticipated a loss of just 2 cents per share on revenue of $8.12 billion. I guess it’s no surprise that Sprint shares plunged over 11% in Wednesday’s trade following news of the earnings miss. 

Now, if we dig a little deeper into the earnings report, we see that that the company’s wireless revenues fell 9% to $7 billion. Those losses included 991,000 customers who sign annual contracts. And while this was an improvement from the 1.25 million customers lost in the previous quarter, it’s still nothing to phone home about.

If we consider the competition, we find out that Verizon (VZ) added 1.1 million subscribers during the second quarter, while AT&T (T) put an additional 1.37 million customers its rolls.

The "Pre" Effect

One of the things on analysts’ minds regarding Sprint was the effect the new Palm Pre smartphone would have on the company’s bottom line.

Unfortunately, Hesse offered very little in the way of details about the Pre, the smartphone Sprint began selling on an exclusive basis in June. Hesse did say the Pre has "mitigated" some of the effect Sprint would have felt due to the release of Apple’s (AAPL) new iPhone 3GS. Hesse did say that much of the initial interest in the Pre came from existing customers.

These findings came as no surprise to me, thanks to the intel I received from the ChangeWave Alliance Research Network. According to a June Consumer Smartphone Survey, Palm’s percentage of planned smartphone purchases is off to a very solid start.

As Hesse said, current Palm owners are most likely to buy the new Pre model. The survey found that 11% of current Palm owners were "very likely" to buy the Pre, while 18% said they were "somewhat likely." But above and beyond existing Palm owners, the Pre also shows it has the momentum to attract customers from Palm’s competitors, particularly Sanyo and HTC.

Clearly, the Palm Pre is breathing new life into the company, but the question now is will it breathe enough life into Sprint shares? 
In my opinion, the answer is no. I’d stay away from Sprint here. 

If you want to invest in some powerhouse companies with exposure to the wireless telecom sector, then do so by investing in the makers of the hottest devices; Apple (AAPL) and Research In Motion (RIMM).