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Sprint Nextel Corp
Sprint Nextel Corp. (S), the third- largest U.S. wireless carrier, posted a smaller first-quarter loss than analysts predicted as rising monthly bills provided some relief to a company plagued by user defections.
The loss widened to 29 cents a share from 15 cents a year earlier, Overland Park, Kansas-based Sprint said today in a statement. Analysts projected (S) a loss of 41 cents, the average of estimates compiled by Bloomberg. Sales rose 5.1 percent to $8.73 billion, compared with the $8.7 billion analysts predicted.
Sprint, which has reported five straight annual losses, boosted contract customers’ average monthly bills 6.6 percent from a year earlier to $59.88 as users spent more on smartphone data plans. The carrier’s addition of the Apple Inc. (AAPL) iPhone last year is helping it regain some ground lost to larger rivals Verizon Wireless and AT&T Inc. (T), which posted rising sales and earnings this month.
“This was easily the most impressive quarter of the three telcos that have reported to date,” said Kevin Smithen, an analyst at Macquarie Capital USA Inc. in New York with an outperform rating on the stock. Operating earnings “exceeded all the estimates.”
Sprint fell 1.6 percent to $2.43 at the close in New York. The shares have tumbled 49 percent in the past 12 months.
Sprint sold 1.5 million iPhones, helped by its $99.99-a- month unlimited calling-and-data plan that Verizon Wireless and AT&T don’t offer. Smithen estimated 1.2 million and Walt Piecyk, an analyst at BTIG LLC in New York, predicted 1.4 million.
The monthly bill for contract customers exceeded the $59.25 average of eight analyst estimates compiled by Bloomberg.
“Data prices are rising for the consumer and as a result Sprint, AT&T and Verizon are reporting higher” earnings, Piecyk said.
Sprint lost 192,000 contract customers, driven by its Nextel unit, which is preparing to shut down a network using older technology. Analysts projected a loss of 54,558 such users on average. Contract users for the Sprint brand rose by 263,000. AT&T gained 187,000 contract subscribers in the first quarter, and Verizon Wireless added 501,000 such customers.
Sprint’s operating income (S) before depreciation and amortization was $1.2 billion. Analysts had estimated earnings on that basis of $937 million. The net loss expanded to $863 million from $439 million a year earlier.
Sprint Chief Executive Officer Dan Hesse is boosting spending to catch up with the bigger competitors. The U.S. wireless market is nearing saturation, putting Sprint, AT&T and Verizon Wireless into more intense competition as they try to get customers to upgrade to smartphones such as the iPhone that let users browse the Web and stream video.
The number of wireless devices, including tablets, now exceeds the number of people in the U.S., said Bob Roche, a statistician with CTIA, a wireless industry trade group. Roche says so-called wireless penetration is 105 percent.
Sprint’s capital spending increased 44 percent to $800 million in the first quarter. The company is trying to catch up with AT&T and Verizon Wireless in faster network technology called long-term evolution, or LTE. Sprint reiterated it expects to have LTE service in six major cities, including Dallas and Baltimore, by mid-year.
AT&T said yesterday that it had LTE service in 35 markets and that it expects to double that number by year-end. Verizon Wireless, which has a one-year lead on the pack, said this month that it had LTE service in 230 cities.
The push to take on AT&T and Verizon Wireless leaves Sprint coping with rising expenses that include a four-year $15.5 billion contract to sell the iPhone and $10 billion for network expansion over the next two years. The company sold $4 billion of bonds in November and $2 billion in February, a sign its expansion plans are underfunded.
The company has $8.8 billion in cash, short-term investments and credit lines, Chief Financial Officer Joe Euteneuer said on a conference call. He also said the company was in discussions to get between $1 billion to $3 billion in vendor financing from its equipment suppliers.
Spending on the network plan will probably double this quarter, Euteneuer said. The spending surge will cause free cash flow to turn negative later this year, he said. And with the planned shutdown of the Nextel network, subscriber losses will worsen, he said.
Smithen said these developments were expected as the company makes its transition to LTE. Sprint’s pain will lead to gains for investors, he said.
“Sprint is the most attractive U.S. telco under our coverage, with the potential to more than double over the next two years,” Smithen said.
Sprint also considered buying smaller rival MetroPCS Communications Inc. (PCS), only to have its board vote down the acquisition, two people familiar with the plan said in February. The board decided the stock and cash transaction, which may have cost as much as $8 billion including debt, would have been too expensive given the current level of Sprint’s stock price.
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