Sprint Nextel saw the biggest surge in new customers in six years thanks to the iPhone, but that growth came at a hefty price.
Sprint reported a loss of $1.3 billion, or 43 cents a share. In the year-ago quarter, the company posted a loss of $929 million, or 31 cents a share. The results included a loss of $241 million, or 8 cents a share, due to one-time costs related to asset charges on property, plant, equipment, as well as severance costs, and its investment in Clearwire, which provides Sprint with 4G WiMax service.
Wall Street analyst had an average forecast of a loss of 37 cents a share on revenue of $8.69 billion.
Like Verizon and AT&T, Sprint showed impressive customer growth in the period as customers lined up to buy the iPhone 4S. But also like its larger rivals, the company paid out a massive amount in subsidies to Apple. The result: a setback to the company's road to profitability.
The dilemma is the more iPhones are sold, the bigger the near-term hit. Sprint activated 1.8 million iPhones in the period, and said 40 percent of those activations came from customers new to Sprint. Unlike Verizon and AT&T, Sprint offers an unlimited data plan alongside the iPhone.
That Sprint posted a loss isn't a shocker; the company has warned that costs related to the iPhone, as well as its 4G LTE network deployment, would pressure margins in the coming year. Chief Financial Officer Joe Euteneuer warned the iPhone was going to be 40 percent more expensive than other smartphones. The company is asking Wall Street for a bit of patience as it works to deploy its own next-generation network and gets its customer growth back on track.
Hesse has said he is willing to pay the high costs of the iPhone because missing out on the product has been the company's biggest source of customer defection. With the iPhone, he hopes to garner more loyal customers willing to pay more revenue each month.
Sprint added a total of 1.6 million net new customers, driven in part by 161,000 customers who signed a long-term contract with Sprint. Getting to growth in so-call postpaid customers has been a challenge for Sprint because results have always been weighed down by losses on the Nextel side.
The flagship Sprint brand added 539,000 new postpaid customers, while Nextel lost 378,000 customers. The defections continue as the company prepares to shut down the Nextel's iDEN network next year.
It also added a net 507,,000 prepaid customers who signed up through its Virgin Mobile and Boost Mobile services, and its government-subsidized low-income Assurance Wireless offering. The results include losses from the Nextel prepaid services.
Its wholesale business, which Sprint leans on heavily for growth, added 954,000 net new customers through resellers and affiliates.
Sprint reported a customer turnover rate of 1.98 percent, a tick up from 1.86 percent a year ago. The company blamed the higher defection on involuntary disconnections from customers who couldn't pay their bills or violated their terms and conditions. Sprint said it tightened its credit standards in the third and fourth quarter to avoid seeing similar issues.
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