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Nextel Clientele Up 22% As Sprint Merger Nears

Revenue Up, but 4th-Quarter Profit Falls

By Yuki Noguchi
Washington Post Staff Writer
Friday, February 18, 2005; Page E05

Nextel Communications Inc. ended 2004 with 16.2 million subscribers, up 22 percent from 2003, the wireless carrier said yesterday as it reported earnings.

The Reston-based company credited industry-wide growth in the cell phone business and the success of Boost Mobile, a prepaid wireless service it is marketing to young adults. It said it plans to sell Boost, which now has 1.2 million subscribers in 12 markets, nationwide this quarter.

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Nextel, which expects to complete a $35 billion merger with Sprint Corp. this year, said its fourth-quarter earnings fell because of a $231 million tax payment but revenue increased 19 percent over the fourth quarter of 2003.

The company earned $471 million (41 cents a share) in the fourth quarter on revenue of $3.6 billion. That compares with a profit of $634 million (55 cents) on revenue of $3 billion during the same period a year earlier.

Analysts said Nextel's subscriber growth is likely to be repeated by other wireless carriers that will report earnings in coming days.

Roger Entner, an analyst with the Yankee Group, a market-research firm, said 2004 "was better than everybody expected, with very strong growth driven by very aggressive 'family-share' initiatives from basically all carriers." The mobile-phone industry added 20 million subscribers in 2004, and is likely to add 12 million more this year, he said, mostly through prepaid phone services like Boost.

In a conference call with analysts, chief executive Timothy M. Donahue said Nextel's challenge this year will be to stay focused on increasing its customer base.

"Our plans to integrate our operations with Sprint will command some of our attention, but not distract us from our focus," he said. The companies filed last week for regulatory approval of their merger.

Nextel said it hired three outside consulting firms, which it did not identify, to help coordinate planning for the Sprint-Nextel combination. The two companies must compete against each other until the merger closes, company officials said, but Nextel also must plan its marketing, technology, and product strategy so it can coordinate with Sprint as soon as the merger is complete.

"We are thinking through things like what we want the stores to look like, what do we want the [customer] experience to be," said Paul N. Saleh, Nextel's chief financial officer. The company is planning to help employees adjust to the merger, charting steps that would be taken almost immediately after the merger is approved.

Donahue said "2004 was a remarkable year for us" on a variety of fronts. He said the company secured valuable new frequencies from the Federal Communications Commission, expanded its brand awareness through a sponsorship of NASCAR and announced the merger deal with Sprint in December.

Nextel said it plans to invest $2.6 billion this year in its network, which works with a proprietary walkie-talkie type technology that more than 90 percent of its subscribers use.

"It is interesting that they are going to continue to spend on their network. That's a clear sign that the push-to-talk technology that they have will have a long lifetime ahead of it," which is a good thing for the business and teenage users who rely on that service, said Jonathan Atkin, an analyst with RBC Capital Markets in San Francisco.

For all of 2004, Nextel earned $3 billion ($2.62 a share) on revenue of $13.4 billion, up from a profit of $1.5 billion ($1.34) on revenue of $10.8 billion in 2003.

Shares of Nextel closed yesterday at $28.59 a share, down 59 cents.

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