Sprint Loses Money, Users
Firm Says It May Sell Some Assets

By Cecilia Kang
Washington Post Staff Writer
Tuesday, May 13, 2008

Sprint Nextel yesterday reported first-quarter losses of 1.1 million subscribers and more than half a billion dollars.

The good news, chief executive Daniel R. Hesse said, was that subscriber loss had slowed.

In addition, the company said it may sell some "non-core assets" to alleviate its financial burden. That prompted analysts to question whether a sale might include the Nextel business, as was widely rumored last week.

Shares of Sprint fell 1.5 percent, to $9.24.

Hesse said that the company's recovery "would take many quarters," but during a conference call with investment analysts, he said that he expected lower churn rates of subscribers in the second quarter.

"We are still far from where we ought to be," Hesse said, "but the focus is beginning to pay off."

Hesse said the company was trying to hold on to subscribers by offering better customer service and being more selective about the customers it signs. He said, however, that post-paid subscriber losses -- a measure of customers dropping service -- "will improve only marginally from first-quarter levels."

Sprint, the nation's third-largest wireless carrier, after AT&T and Verizon Wireless, reported a loss of $505 million (18 cents a share) in the first quarter, compared with a loss of $211 million (7 cents) in the corresponding period a year earlier. Revenue dropped 7.5 percent, to $9.33 billion.

In the conference call, Hesse did not directly address rumors about the sale of Nextel. The Wall Street Journal reported last week that Sprint was in talks to sell the business to a group of investors who would use it as a nationwide public safety network.

"Nothing," he said, "is off the table."

He pointed out that the company recently invested in marketing and new phones for Nextel's walkie-talkie-like service.

Since Hesse took over in December, the company has taken several steps to overhaul itself in the wake of its $35 billion merger with Nextel Communications in 2005. Hesse revamped the executive ranks this month by bringing in Robert Brust from Eastman Kodak to be chief financial officer and flattening the bureaucracy to remove management layers.

He also introduced a flat-rate monthly plan that combines voice, data, text-messaging and Internet services -- the most comprehensive flat-rate plan among the top three wireless carriers. Last week, Hesse announced a joint venture with Clearwire for a future high-speed wireless network. That deal brought in investors to pick up at least $3.2 billion in costs that Sprint would otherwise have been saddled with.

Those efforts may be paying off, said Christopher King, an analyst at Stifel Nicolaus.

"The first quarter was the beginning of a clear-the-decks type of phase," King said, "and in the first quarter there's a decent chance they hit bottom."

Sprint's wireless subscriber base fell 1.5 percent from a year earlier, to 52.8 million.

Critics said that the merger, orchestrated by former chief executive Gary D. Forsee, burdened Sprint with heavy financial obligations and that the Sprint and Nextel networks were never well integrated. Those problems, along with poor customer service, contributed to the loss of subscribers, they said.

As Sprint has struggled to keep subscribers and gain new ones, competitors enjoyed booming subscriber and revenue growth. AT&T's wireless unit added 1.3 million subscribers in the first quarter, and Verizon Wireless increased its subscriber base by 1.5 million.

That makes Craig Moffett, an analyst at Sanford C. Bernstein, cautious about Sprint's outlook. Sprint's problems, he said, are like the game Whac-a-Mole. A new problem pops up just as the last one is smashed.

He noted that the average revenue per user in the first quarter fell 6.9 percent, to $53.60.

"Not only is Sprint losing customers," Moffett wrote in a research note. "They are losing their best customers."