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Sprint Reports Second Quarter Results
Posted: 28-Jul-2011 [Source: Sprint Nextel]

[Sprint reports losing approximately 101,000 net postpaid subscribers during the quarter]

Overland Park, Kan. -- Wireless Customer Highlights:

* The company served over 52 million customers at the end of the second quarter of 2011. This includes 32.9 million postpaid subscribers (27.7 million via the Sprint brand on CDMA, 5 million on iDEN, and 268,000 Nextel PowerSource users who utilize both networks), 13.8 million prepaid subscribers (11.1 million on CDMA and 2.7 million on iDEN) and approximately 5.4 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.

* For the quarter, Sprint added nearly 1.1 million net wireless customers, including net additions of 573,000 retail subscribers and net additions of 519,000 wholesale and affiliate subscribers as a result of growth in prepaid MVNOs and M2M solutions.

* Sprint lost approximately 101,000 net postpaid subscribers during the quarter, a net improvement of 127,000, or 56 percent, compared to the second quarter of 2010.

* The CDMA network added approximately 226,000 net postpaid customers during the quarter, which includes net losses of 49,000 Nextel PowerSource customers. Excluding Nextel PowerSource customer losses, the Sprint brand added 275,000 net postpaid wireless subscribers. The iDEN network lost 327,000 net postpaid customers in the quarter.

* The company added 674,000 net prepaid subscribers during the quarter, which includes net additions of 1.1 million prepaid CDMA customers, offset by losses of 475,000 net prepaid iDEN customers.

* The credit quality of Sprint’s end-of-period postpaid customers was approximately 83 percent prime.

Wireless Churn

* For the quarter, Sprint reported its best ever postpaid churn of 1.75 percent, compared to 1.85 percent for the year-ago period and 1.81 percent for the first quarter of 2011. Quarterly postpaid churn improved year-over-year and sequentially primarily as a result of a larger base of customers on fixed rate bundled plans or 4G handsets.

* Approximately 9 percent of postpaid customers upgraded their handsets during the second quarter, reflecting strong demand for Sprint’s handset portfolio and continued strength in contract renewals.

* Prepaid churn for the second quarter of 2011 was 4.14 percent, compared to 5.61 percent for the year-ago period and 4.36 percent for the first quarter of 2011. The quarterly 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 the remainder of our prepaid subscriber base. Prepaid churn also benefited from improvement in churn for Virgin Mobile customers both year-over-year and sequentially.

Wireless Service Revenues

* Wireless retail service revenues of $6.7 billion for the quarter represent an increase of almost 5 percent compared to the second quarter of 2010 and almost 1 percent compared to the first quarter of 2011. The quarterly year-over-year improvement is primarily due to an increased number of net prepaid subscribers as a result of the Boost Monthly Unlimited offering, additional market launches of Assurance WirelessSM and the re-launch of the Virgin Mobile brand, as well as higher postpaid ARPU, partially offset by net losses of postpaid subscribers since the second quarter of 2010. Sequentially, wireless service revenues increased primarily as a result of growth in net prepaid subscribers and higher postpaid ARPU.

* Wireless postpaid ARPU increased year-over-year from $55 to $57, the largest year-over-year postpaid ARPU growth in over seven years. Year-over-year, ARPU benefited from higher monthly recurring revenues as a result of premium data add-on charges for smartphones and the greater popularity of fixed-rate bundle plans, partially offset by lower overage, casual data and text revenues. Sequentially, ARPU increased from $56 to $57, primarily as a result of growth in premium data add-on revenues.

* Prepaid ARPU of $28 for the quarter declined slightly year-over-year and sequentially as a result of a greater mix of Assurance WirelessSM customers who on average have lower ARPU than the remainder of our prepaid subscriber base.

* Quarterly wholesale, affiliate and other revenues were up $3 million, compared to the year-ago period, and decreased $15 million sequentially, resulting from changes in wholesale revenues from our 3G MVNO relationships.

Wireless Operating Expenses and Adjusted OIBDA*

* Total wireless operating expenses were $7.5 billion in the second quarter, compared to $7.3 billion in the year-ago period and in the first quarter of 2011.

* Wireless equipment net subsidy in the second quarter was approximately $1.1 billion (equipment revenue of $690 million, less cost of products of $1.8 billion), compared to approximately $1 billion in the year-ago period and approximately $1.1 billion in the first quarter of 2011. The quarterly year-over-year increase in net subsidy is associated with both postpaid and prepaid handset sales. Within postpaid, the increase in net subsidy includes an increased mix of 4G smartphone sales, which on average carry a higher subsidy rate per handset, impact from a limited time offer which replaced mail-in rebates with instant rebates in select sales channels and increased handset sales volume. Within prepaid, the increase is primarily due to higher handset sales volume as a result of the Boost Monthly Unlimited offering, additional market launches of Assurance WirelessSM and the re-launch of the Virgin Mobile brand. Sequentially, total net subsidy remained relatively flat as lower overall prepaid subsidy was offset by higher average subsidy rate per postpaid handset as a result of instant rebates and a greater mix of 4G smartphones.

* Wireless cost of service increased approximately 8 percent and 9 percent for the quarterly year-over-year and sequential periods, respectively. The quarterly year-over-year and sequential increases primarily resulted from higher customer data usage and higher service and repair costs as a larger percentage of our customer base is on smartphones.

* Wireless SG&A expenses increased 6 percent year-over-year but remained relatively flat sequentially. Quarterly year-over-year SG&A expenses increased primarily due to costs related to prepaid subscriber gross additions and account replenishment, higher postpaid and prepaid marketing costs, and higher bad debt, partially offset by improvement in customer care.

* Wireless depreciation and amortization expense decreased $369 million year-over-year primarily due to the absence of amortization for customer relationship intangible assets related to the 2005 acquisition of Nextel, which became fully amortized as of June 30, 2010, as well as the company’s annual depreciable life study reflecting a reduction in the replacement rate of capital additions.

* Wireless Adjusted OIBDA* of $1.1 billion in the second quarter of 2011 compares to $1.2 billion in the second quarter of 2010 and $1.3 billion in the first quarter of 2011. The quarterly year-over-year decline in Adjusted OIBDA* was primarily due to an increase in cost of service, equipment net subsidy, and SG&A expenses, partially offset by higher postpaid and prepaid service revenues. Quarterly sequential Adjusted OIBDA* declined primarily as a result of higher cost of service partially offset by higher prepaid and postpaid service revenues.

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