Sprint Nextel Corp. (NYSE:S - News) today reported that during the third quarter of 2010, the company achieved its best total company wireless subscriber net additions since 2006, adding 644,000 total wireless subscribers driven by positive net postpaid subscriber growth of 354,000 for the Sprint brand and the company’s best year-over-year improvement in postpaid churn in five years. Demand for smartphones like Samsung Epic 4GTM and HTC EVO™ 4G remained strong, and the company delivered postpaid churn of 1.93 percent – the best postpaid churn result Sprint has reported in the third quarter of any year.
Sprint announced third quarter consolidated net operating revenues of almost $8.2 billion, a net loss of $911 million and a diluted loss per share of 30 cents. The company generated $384 million of Free Cash Flow* in the quarter, and maintained a strong liquidity position with approximately $4.7 billion in cash and cash equivalents at the end of the quarter.
“Driven by record customer satisfaction, and the performance of iconic devices like the EVO and Epic, Sprint’s momentum continued this quarter,” said Dan Hesse, Sprint CEO. “The Sprint brand gained postpaid customers for the fourth consecutive quarter as, for the second consecutive quarter based on porting data, more customers switched to Sprint from our competitors than switched from Sprint to our competitors. In addition, our last two quarters have been all-time bests for postpaid churn. We also saw improvement sequentially in prepaid net adds and our lowest prepaid churn in almost five years.”
Sprint continued to receive recognition, including the No. 6 spot in Newsweek’s Green Ranking and multiple awards for customer satisfaction during the quarter. Sprint won seven ATLANTIC-ACM Awards for Business Connectivity and Wireless Business Excellence. For the second year in a row, Sprint received top honors in the Nemertes 2010 Pilothouse awards for MPLS Services. And in the device category, HTC EVO™ 4G was honored with POPULAR MECHANICS’ Breakthrough Award which recognizes the innovators and products poised to change the world in the fields of technology, medicine, aviation, environmental engineering and more.
Sprint’s multi-brand prepaid strategy continued to roll out during the third quarter as the company’s new Virgin Mobile “Beyond Talk” data-centric plans and Assurance Wireless plans significantly contributed to increased gross additions. The focus on data and connectivity was also supported by a new $40 unlimited data plan for Virgin’s Broadband2Go product line. As part of the broader portfolio, Sprint also launched payLo™ by Virgin Mobile, providing value for the customer with basic communications needs with a 400 Minutes for $20/month plan. And Boost Mobile added another dimension to its unlimited offer with a $2 Daily option.
“Earlier this month at CTIA, we introduced Sprint ID, a ground-breaking innovation available on devices using the Android platform that lets customers download up to five ‘packs’ of mobile content built around customers’ interests or business needs. Recognized and respected brands like Yahoo!, HSN, Disney, ESPN, LatCel and eBay have teamed with Sprint to deliver easy navigation and simplicity in a growing ocean of mobile applications. Sprint will differentiate itself by bringing simplicity and openness to the mobile Internet,” Hesse said.
Heading into the holidays, Sprint boasts a varied and compelling device portfolio that includes more than a dozen products that offer 4G service, including phones, USB modems, mobile hotspots and routers. The popular Samsung Epic™ 4G became Sprint's second 4G handset when it debuted in stores in September. The award-winning Samsung GalaxyTM Tab will be available to customers Nov. 14, with 3G network speeds and integrated Sprint ID. Last week, Sprint became the first wireless carrier in America to offer an embedded 3G/4G netbook and notebook, announcing the availability of Dell Inspiron Mini 10 (1012) and Dell Inspiron 11z. And debuting Oct. 31, 2010, the Blackberry® StyleTM 9670 will offer an elegant flip design, full QWERTY keyboard, advanced smartphone features and new BlackBerry 6 OS.
Sprint launched 4G service in 19 new cities during the quarter, including Boston, Orlando and Nashville. Sprint 4G is now available in 55 markets. As previously announced by Clearwire Corp. (NASDAQ:CLWR - News), coverage is expected to reach up to 120 million people by the end of 2010, including a deployment in New York on Nov. 1, and in December, Sprint will launch 4G service in Los Angeles, Miami and San Francisco, to name a few.
* The company served 48.8 million customers at the end of the third quarter of 2010. This includes 33.1 million postpaid subscribers (26.6 million via the Sprint brand on CDMA, 6.1 million on iDEN, and 440,000 Power Source users who utilize both networks), 11.6 million prepaid subscribers (7.1 million on CDMA and 4.5 million on iDEN) and approximately 4.1 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.
* For the quarter, Sprint added a total of 644,000 net wireless customers including net additions of approximately 364,000 retail subscribers and net additions of 280,000 wholesale and affiliate subscribers.
* Net postpaid subscriber losses of 107,000 during the quarter improved 87 percent year-over-year and 53 percent sequentially. The company reduced net subscriber losses by 694,000 compared to third quarter of 2009 and 121,000 compared to second quarter of 2010.
* The CDMA network added approximately 276,000 postpaid customers during the quarter, which includes net losses of 78,000 Nextel PowerSource customers. Excluding Nextel PowerSource customer losses, the Sprint brand gained 354,000 total postpaid wireless subscribers. The iDEN network lost more than 383,000 customers during the quarter.
* The company gained a net 471,000 prepaid subscribers during the quarter, which includes net additions of almost 1.2 million prepaid CDMA customers, offset by net losses of 700,000 prepaid iDEN customers.
* The credit quality of Sprint’s end-of-period postpaid customers remained strong year-over-year and sequentially at 84 percent prime.
* Postpaid churn in the quarter was 1.93 percent, compared to 2.17 percent in the year-ago period and 1.85 percent in the second quarter of 2010. The company continues to differentiate itself by offering customers value and simplicity. As a result, the year-over-year improvement in postpaid churn is primarily due to a better customer experience resulting in a higher level of customer satisfaction at every touch point. Sequentially, postpaid churn was impacted by historical third quarter seasonality.
* Almost 10 percent of postpaid customers upgraded their handsets during the third quarter, reflecting strong demand for Sprint’s 4G handsets and continued strength in contract renewals.
* Prepaid churn in the third quarter of 2010 was 5.32 percent, compared to 6.65 percent in the year-ago period and 5.61 percent in the second quarter of 2010. The year-over-year improvement in prepaid churn is primarily due to the inclusion of Virgin Mobile and Assurance WirelessSM customers who have lower churn on average than that of Boost Mobile customers. Sequentially, prepaid churn improved as a result of the continued growth of Boost Monthly Unlimited subscribers on the CDMA network and Assurance WirelessSM customers, as well as the success in the re-launch of the Virgin Mobile brand with new offers and marketing campaigns.
Wireless Service Revenues
* Retail wireless service revenues of $6.4 billion for the quarter increased by almost 2 percent compared to the third quarter of 2009 and decreased by less than 1 percent compared to the second quarter of 2010. The year-over-year improvement is primarily due to an increased number of prepaid subscribers as a result of the success of the Boost Monthly Unlimited offering, the fourth quarter 2009 acquisition of Virgin Mobile and subsequent brand launches associated with the company’s prepaid multi-brand strategy, partially offset by net losses of postpaid subscribers since the third quarter 2009. Sequentially, retail wireless service revenues declined as a result of fewer postpaid subscribers.
* Wireless postpaid ARPU of approximately $55 for the quarter declined year-over-year from $56, but remained flat sequentially. The year-over-year decline is due to lower overage, casual data and text revenues, offset by higher monthly recurring revenue as a result of the greater popularity of fixed-rate bundle plans.
* Prepaid ARPU in the quarter was approximately $28, compared to $35 in the year-ago period and $28 in the second quarter of 2010. The year-over-year decline is due to the inclusion of Virgin Mobile and Assurance Wireless customers who have lower ARPU than that of Boost Mobile customers.
* Wholesale, affiliate and other revenues were down $86 million, compared to the year-ago period, and increased slightly sequentially. Service revenues in wholesale, affiliate and other revenues declined year-over-year as revenues from Virgin Mobile and iPCS, Inc. are now included in wireless retail revenues following the acquisitions in the fourth quarter of 2009. The year-over-year decline is also due to the loss of two large wholesale customers throughout 2009 and was completed in the fourth quarter of 2009.
Wireless Operating Expenses and Adjusted OIBDA*
* Total wireless operating expenses were $7.5 billion in the third quarter, compared to $7.4 billion in the year-ago period and $7.3 billion in the second quarter of 2010.
* Wireless equipment subsidy in the third quarter was almost $1.1 billion (equipment revenue of $740 million, less cost of products of $1.81 billion), compared to approximately $950 million in the year-ago period and approximately $1.0 billion in the second quarter of 2010. The year-over-year increase in subsidy is a combination of improvement in postpaid gross additions, an increase in postpaid handsets sold with a greater mix of smartphones, which on average carry a higher subsidy rate per handset, and an increase in the number of prepaid handsets sold primarily as a result of the acquisition of Virgin Mobile and subsequent brand launches associated with the company’s prepaid multi-brand strategy. Sequentially, subsidy increased as retail subscriber gross additions continue to improve.
* Wireless SG&A expenses increased approximately 3 percent year-over-year and increased approximately 1 percent sequentially. Year-over-year SG&A expenses increased primarily due to increased gross additions, a reduction of other variable costs reflected in third quarter 2009, and the increased customer base resulting from the acquisition of Virgin Mobile. Sequentially, SG&A increased as a result of increased prepaid marketing spend and increased sales expenses as a result of higher gross additions.
* Adjusted OIBDA* of $1.1 billion in the third quarter of 2010 compares to $1.2 billion in the third quarter of 2009 and $1.2 billion in the second quarter of 2010. The year-over-year decline in Adjusted OIBDA* was primarily due to lower postpaid service revenues and higher subsidy costs, partially offset by higher prepaid service revenues. Sequentially, Adjusted OIBDA* declined primarily as a result of higher subsidy costs and seasonally higher cost of service.