Sprint Loses 1.3 mil. Customers, Continues Swing to Loss

Market Comparison

Sprint, the third-largest wireless carrier in the United States, has reported its fifth straight quarter of subscriber losses, losing 1.3 million customers to bring the total customer base down by 6.3% year-on-year (y/y) to 50.5 million, while the top eight carriers, including Sprint, managed to produce growth of 8.8%.

Incorporating the data from Sprint into the net additions for the third quarter of 2008, the observed trend of a significant decline in growth is confirmed, with net additions down by over one-third on the previous year.

Operational Performance

Most of the subscriber losses came from the post-paid contract base, which lost 1.12 million to reach 37.8 million subscribers, down by 8.8% y/y. Even so, the pre-paid base was hit proportionally harder, losing 393,000 subscribers—7.8% of its customer base in just one quarter or 13.5% over the last year—from a peak of 4.6 million at the end of 2007 to hit 3.9 million. Wholesale swung back into positive territory, adding 108,000 subscribers to total 7.9 million, while affiliates added 22,000 subscribers to count 905,000. Churn was marginally up by 0.15% on a year ago to 2.15%. Sprint has been focusing on customer service issues, which were identified as a key point of failure (see United States: 19 September 2008: Customer Service Issues Resolved But Crunch Hits Corporate Business—Sprint CEO). Resolving these issues could have a contrary impact in the immediate term as they will actually make it easier for customers to leave, but are required to turn around the company's battered reputation.

Sprint operates the Nextel iDEN network and a CDMA network, and counted 34.5 million users on the CDMA network (up from 34.1 million a year ago), 13.5 million on the iDEN network (down from 18.7 million a year ago) and 1.6 million dual-network 'Powersource' subscribers (up from 1.2 million a year ago). While losses continue to be dominated by the iDEN network, they have come from all direct user segments, including the unlimited pre-paid offer, which had been growing, but it faces tougher competition in competing offers from low–cost, no-contract carriers MetroPCS and Leap as they move into new markets, as well as the unlimited contract offers of the main carriers. Sprint had looked at selling off the iDEN unit, but in the tight financial market failed to find an offer that was attractive enough (see United States: 31 October 2008: Sprint to Retain and Rejuvenate Nextel iDEN Network).

Financial Results

Operating revenues were hit by the decline in subscribers and a fall in ARPU from US$59 to US$56 per contract subscriber per month, although pre-paid ARPU rose from US$30 to US$31. Overall, operating revenues fell by 12.2% to US$8.8 billion, swinging an operating income of US$658 million into an operating loss of US$233 million, with new income swinging from a positive US$64 million into a loss of US$326 million. This comes despite a 59% cut in capital expenditure (capex) from US$1.17 billion to US$485 million, which included US$134 million related to the WiMAX deployment that is set to be spun off (see United States: 30 September 2008: Sprint Launches First Xohm WiMAX Network in Baltimore). Sprint has noted that most wireless projects, such as 3G deployment, have been completed while capacity needs have reduced, facilitating the lower capex.

Outlook and Implications