Sprint Nextel Corp. today reported that during the fourth quarter of 2010, the company achieved its best total company wireless subscriber additions and net postpaid additions since the first and second quarters of 2006, respectively. The company added nearly 1.1 million total wireless subscribers driven by net postpaid subscriber additions of 58,000, which include net subscriber additions of 519,000 for the Sprint brand - and the company’s best ever fourth quarter prepaid net subscriber additions of 646,000. The company delivered postpaid churn of 1.86 percent - the best postpaid churn result Sprint has reported in the fourth quarter of any year. Sprint achieved its best ever annual postpaid churn of 1.95 percent in 2010.
Sprint generated $913 million of Free Cash Flow* in the quarter, and $2.5 billion for full year 2010. As of December 31, 2010, the company had nearly $5.5 billion in cash, cash equivalents and short-term investments. Sprint reported fourth quarter consolidated net operating revenues of approximately $8.3 billion, which is a 6 percent increase from the same quarter a year ago, and an operating loss of $139 million, a 74 percent improvement from the year ago period. The company also reported a net loss of $929 million and a diluted loss per share of 31 cents for the quarter. Full year 2010 results included consolidated net operating revenues of $32.6 billion, an operating loss of $595 million, which is a 57 percent improvement compared to 2009, and a diluted loss per share of $1.16.
“I am pleased with the progress Sprint made in 2010 in each of our three focus areas. Sprint’s customer experience and brand continued to strengthen during the year, and we generated excellent cash flow,” said Dan Hesse, Sprint CEO. “It had been almost five years since we added over a million customers in a quarter, and the annual improvement in postpaid subscriber results of 2.7 million vs. the previous year is unprecedented in the history of the U.S. wireless industry.”
Sprint continues to receive recognition for customer service leadership from prominent and well-read consumer publications and organizations including recent recognition by Vocal Laboratories Inc. (Vocalabs), which found that in 2010 Sprint moved to first place among its peers in call satisfaction and first call resolution, among surveyed customers. Frost & Sullivan also praised Sprint with awards for Value Enhancement in Mobile Advertising and Green Excellence in Mobile & Wireless. The HTC EVOTM 4G’s award-winning streak continued when it was selected for Good Housekeeping’s Very Innovative Products Award, which recognizes products that are ingenious breakthroughs.
Sprint’s multi-brand prepaid strategy again made significant contributions to the company’s subscriber growth. Focusing on value and simplicity, Sprint prepaid brands like Assurance WirelessSM and Virgin Mobile offer consumers affordable choices and alternatives to long-term wireless contracts. Innovative offers like Boost Mobile’s Monthly Unlimited with Shrinkage, a loyalty program that allows customers to reduce their bills after six on-time payments, have helped Sprint’s prepaid brands differentiate themselves in a rapidly growing market. In 2010, Sprint added more than 1.6 million prepaid subscribers to its networks and now serves 12.3 million prepaid subscribers.
“We have momentum entering 2011, and in addition to offering our customers simplicity and value with our unlimited data plans, we will continue to focus on device leadership, especially in 4G, as our 18 4G devices leads the industry by a wide margin,” Hesse said.
Sprint offers more 4G products than any other wireless carrier in the United States, including three handsets. During fourth quarter 2010, Sprint officially launched the embedded 3G/4G netbook and notebook, DellTM InspironTM Mini 10 (1012) and DellTM InspironTM 11z. Last month, Sprint also announced the availability of the MiFi® 3G/4G Mobile Hotspot by Novatel Wireless and the HTC EVOTM Shift 4G. Sprint launched 4G service in 16 new markets during the quarter, including New York, San Francisco, Miami and Los Angeles. Sprint 4G is now available in 71 markets, reaching more than 110 million people.
Sprint also launched three exciting Android devices featuring integrated Sprint ID: LG Optimus STM, Sanyo ZioTM by Kyocera, and Samsung TransformTM. Sprint ID, introduced in October, is a user-friendly way for customers to personalize their AndroidTM experience, conveniently downloading ID packs that feature applications, screensavers and more. Sprint has collaborated on the development of Sprint ID packs with ESPN, HSN and MTV and previously announced its collaboration with BodyMedia, Inc., among others.
* Consolidated net operating revenues of $8.3 billion for the quarter were 6 percent higher than in the fourth quarter of 2009 and almost 2 percent higher than in the third quarter of 2010. The quarterly year-over-year improvement was primarily due to increases from fourth quarter 2009 acquisitions of Virgin Mobile and iPCS, higher equipment revenues, and prepaid Boost service revenues partially offset by lower postpaid wireless service revenues and wireline revenues. The quarterly sequential improvement was primarily due to higher equipment and wireless service revenues partially offset by lower wireline revenues.
* Adjusted OIBDA* was $1.3 billion for the quarter, compared to $1.4 billion for the fourth quarter of 2009 and $1.3 billion for the third quarter of 2010. The quarterly year-over-year decline in Adjusted OIBDA* was primarily due to higher subsidy costs from the increased volume of handset sales and associated sales expenses resulting from higher retail subscriber gross additions. For the sequential quarter comparison, Adjusted OIBDA* remained relatively flat as improvements in wireless service revenue and seasonally lower cost of service offset higher subsidy and selling costs resulting from continued improvement in retail subscriber gross additions.
* Capital expenditures were $608 million in the quarter, compared to $554 million in the fourth quarter of 2009 and $462 million in the third quarter of 2010. Wireless capital expenditures were $473 million in the fourth quarter of 2010, compared to $427 million in the fourth quarter of 2009 and $341 million in the third quarter of 2010. During the quarter, the company invested primarily in coverage and data capacity to maintain a competitive position in mobile broadband and overall network quality. Wireline capital expenditures were $67 million in the fourth quarter of 2010, compared to $62 million in the fourth quarter of 2009 and $59 million in the third quarter of 2010.
* Free Cash Flow* was $913 million for the quarter, compared to $666 million for the fourth quarter of 2009 and $384 million for the third quarter of 2010. The quarterly year-over-year improvement was primarily due to favorable working capital changes, which include one-time federal tax stimulus refunds of approximately $153 million. Sequential quarterly Free Cash Flow* improved primarily as a result of favorable working capital changes including one-time federal tax stimulus refunds and lower interest payments as compared to the third quarter.
* The company served 49.9 million customers at the end of the fourth quarter of 2010. This includes 33.1 million postpaid subscribers (27.07 million via the Sprint brand on CDMA, 5.67 million on iDEN, and 374,000 PowerSource users who utilize both networks), 12.3 million prepaid subscribers (8.53 million on CDMA and 3.74 million on iDEN) and approximately 4.5 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.
* For the quarter, Sprint added a total of approximately 1.1 million net wireless customers including net additions of approximately 704,000 retail subscribers and net additions of 393,000 wholesale and affiliate subscribers.
* Sprint added 58,000 net postpaid subscribers during the quarter, the first quarter with postpaid net additions since the second quarter of 2007. The company improved net postpaid subscriber additions by 562,000 compared to fourth quarter of 2009 and 165,000 compared to third quarter of 2010.
* The CDMA network added approximately 453,000 postpaid customers during the quarter, which includes net losses of 66,000 PowerSource customers. Excluding PowerSource customer losses, the Sprint brand added 519,000 postpaid wireless subscribers. The iDEN network lost 395,000 postpaid customers in the quarter.
* The company added a net 646,000 prepaid subscribers during the quarter, which includes net additions of 1.4 million prepaid CDMA customers, offset by net losses of 768,000 prepaid iDEN customers.
* The credit quality of Sprint’s end-of-period postpaid customers remained strong year-over-year and sequentially at approximately 84 percent prime.
* Postpaid churn for the quarter was 1.86 percent, compared to 2.11 percent for the year-ago period and 1.93 percent for the third quarter of 2010. The quarterly year-over-year improvement in postpaid churn is primarily due to progress in brand health, handset offerings and overall customer perception. Sequentially, postpaid churn also benefited from historical fourth quarter seasonality.
* Approximately 10 percent of postpaid customers upgraded their handsets during the fourth quarter, reflecting strong demand for Sprint’s handset portfolio and continued strength in contract renewals.
* Prepaid churn for the fourth quarter of 2010 was 4.93 percent, compared to 5.56 percent for the year-ago period and 5.32 percent for the third quarter of 2010. The year-over-year and sequential improvements in prepaid churn were primarily a result of the predominance of Boost Monthly Unlimited subscribers on CDMA and Assurance WirelessSM customers, who on average have lower churn than that of Virgin Mobile customers.
Wireless Service Revenues
* Retail wireless service revenues of $6.5 billion for the quarter increased by almost 4 percent compared to the fourth quarter of 2009 and increased by more than 1 percent compared to the third quarter of 2010. The quarterly 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, additional market launches of Assurance WirelessSM and re-launch of the Virgin Mobile brand, partially offset by net losses of postpaid subscribers since the fourth quarter 2009. Acquisitions completed in the latter part of the fourth quarter of 2009 also contributed to the year-over-year improvement. Quarterly sequential retail wireless service revenues increased primarily as a result of growth in prepaid.
* Wireless postpaid ARPU remained flat for each of the quarterly year-over-year and sequential periods at approximately $55. For the quarter year-over-year, higher monthly recurring revenues as a result of the greater popularity of fixed-rate bundle plans and premium data add-on charges offset lower overage, casual data and text revenues. Quarterly sequential growth in premium data add-on revenue and lower care credits offset seasonally lower overage and roaming revenues.
* Prepaid ARPU for the quarter was approximately $28, compared to $31 in the year-ago period and $28 in the third quarter of 2010. The quarterly year-over-year decline is due to the increased number of Assurance WirelessSM customers and the inclusion of Virgin Mobile customers who have lower ARPU than that of Boost Mobile customers.
* Wholesale, affiliate and other revenues were down $40 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 quarterly year-over-year decline is partially offset by growth of wholesale revenues from prepaid MVNOs and wholesale revenues from our 3G MVNO relationship with Clearwire.
Wireless Operating Expenses and Adjusted OIBDA*
* Total wireless operating expenses were $7.6 billion in the fourth quarter, compared to $7.5 billion in the year-ago period and in the third quarter of 2010, respectively.
* Wireless equipment subsidy in the fourth quarter was almost $1.2 billion (equipment revenue of $830 million, less cost of products of $2.01 billion), compared to approximately $960 million in the year-ago period and almost $1.1 billion in the third quarter of 2010. The quarterly year-over-year increase in subsidy is primarily associated with postpaid gross additions and upgrades and prepaid gross additions. Within postpaid the increase in subsidy is due to a greater mix of smartphones, which on average carry a higher subsidy rate per handset. Within prepaid the increase in the number of handsets sold is a result of the acquisition of Virgin Mobile and subsequent brand launches associated with the company’s prepaid multi-brand strategy. Quarterly sequential subsidy increased primarily as a result of continued improvement in retail subscriber gross additions.
* Wireless SG&A expenses increased over 1 percent year-over-year and increased approximately 5 percent sequentially. Quarterly year-over-year SG&A expenses increased primarily due to increased gross additions and upgrades, partially offset by improvement in general and administrative expenses. Quarterly sequential SG&A increased as a result of increased sales and marketing spend driven by higher retail gross additions and upgrades and higher media spend.
* Adjusted OIBDA* of approximately $1.0 billion in the fourth quarter of 2010 compares to $1.2 billion in the fourth quarter of 2009 and $1.1 billion in the third quarter of 2010. The quarterly year-over-year decline in Adjusted OIBDA* was primarily due to higher subsidy and sales expenses, partially offset by higher prepaid service revenues. Quarterly sequential Adjusted OIBDA* declined primarily as a result of higher subsidy costs, higher sales and marketing expenses, partially offset by increased retail service revenues and lower cost of service.
* Wireline revenues of $1.2 billion for the quarter declined 7 percent year-over-year as a result of reduced voice volume and rate and lower data revenues. Quarterly sequential wireline revenues were almost 2 percent lower primarily due to reductions in voice volume.
* Total operating expenses were $1.1 billion in the fourth quarter of 2010. Total operating expenses declined almost 11 percent year-over-year due to continued decline of voice volume, and improvement in SG&A expenses. Quarterly sequential operating expenses declined approximately 1 percent as a result of lower cost of service.
* Wireline Adjusted OIBDA* was $267 million for the quarter, compared to $259 million in the fourth quarter of 2009 and $271 million reported for the third quarter of 2010. Wireline Adjusted OIBDA* improved quarterly year-over-year as a result of continued focus on cost reductions to offset revenue declines.
Sprint Nextel expects postpaid subscriber net additions for the full year 2011 and to improve total wireless subscriber net additions in 2011, as compared to 2010. The company expects full year capital expenditures in 2011 to be approximately $3 billion. In addition, the company expects to continue to generate positive Free Cash Flow* during 2011.