Sprint Swings to Loss as Customers Flee

Sprint Nextel said yesterday it swung to a loss in the third quarter as it continued to hemorrhage subscribers who have flocked to rival wireless carriers.

The nation's third-largest wireless carrier also said it renegotiated the terms of its revolving credit, loans typically used for everyday operations, allowing it to increase spending without going into default.

This is important for Sprint as it may need to beef up spending on advertising and subsidies on phones to attract new subscribers, analysts said.

"This is the company being proactive during tough financial times," said Walter Piecyk, an analyst at Pali Research.

Sprint lowered its revolving credit to $4.5 billion from $6 billion with higher interest rates. New terms on the loans raise the amount of debt Sprint carries relative to earnings and prohibit the firm from distributing dividends or buying back stock.

In its earnings report for the quarter, Sprint said it lost 1.3 million monthly and pre-paid subscribers, bringing its total subscriber base to 50.1 million. Competitor AT&T, meanwhile, gained 2 million subscribers with the success of its iPhone, and Verizon Wireless gained 1.5 million subscribers in the quarter -- many of those subscribers coming from Sprint.

Problems for Sprint in the quarter included the strong appeal of the iPhone, which is exclusively offered by AT&T, and Verizon's marketing of superior network quality, analysts said. Sprint's answer to the iPhone was a partnership with Samsung on its Instinct touch-screen phone, which features Internet applications like the iPhone's. The Instinct, however, never achieved the mass interest and buzz generated by Apple's iPhone, Piecyk said.

"The iPhone was in a different league," he said.

Economic uncertainty has also deterred consumers from signing new subscriptions and buying new handsets, in effect making the pool for subscriber growth smaller.

Telecommunications analyst Craig Moffett of investment firm Sanford C. Bernstein wrote in a report that Sprint's subscriber base has shrunk by 6.3 percent over the past year. In contrast, the subscriber base for the overall industry has increased 7 percent in the past year, he said.

"In short, Sprint's market share remains in free fall," Moffett wrote.

Sprint chief executive Dan Hesse said he expects "continued pressure" on subscriber losses in the fourth quarter, but said the rate of subscriber churn will be around the same levels as the third quarter.

"We have yet to turn the corner," Hesse told analysts on a conference call.

Sprint posted a loss of $326 million, or 11 cents a share, reversing a year-earlier profit of $64 million, or 2 cents. Excluding the one-time write-off of assets, the company broke even.

Revenue fell 12 percent to $8.82 billion from $10.04 billion a year earlier.

Hesse joined the firm last year to try to right a disastrous merger between Sprint and Nextel, which operate different technologies and had been plagued by customer service problems. He has tightened the reins on spending, saying yesterday he expects to reduce capital expenditures by $300 million to a total of $3 billion for the year. By some metrics, customer service has seen signs of improvement, he said.

The tightened credit market also hampered the company's efforts to sell its walkie-talkie service inherited with the acquisition of Nextel in 2005. The company announced last month it was taking the business off the sales block and was renewing attention to it with more handsets planned to operate on the network.

Shares of Sprint fell 8.4 percent to close at $3.37.