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Subscriber losses continue, but some analysts have the end in sight

By Matt Kapko
There just might be an end in sight for Sprint Nextel Corp.’s troubles. After the company reported first-quarter results that were either in line with analyst predictions or, in some cases, better than expected, the carrier’s stock dropped slightly after an early jolt in morning trading.

The company reported a 9% decline in wireless revenues, to nearly $8 billion, from the year-ago period and $253 million in losses. Overall, the company lost $505 million in the quarter.

The nation’s third-largest carrier continues to lose customers in droves, however, ending the quarter with 52.8 million subscribers. The company closed out the first quarter of 2007 with 53.6 million subscribers.

The carrier’s executives forecast similar customer losses in the coming quarter during a conference call with investors and analysts. However, some industry watchers, such as Tom Watts and Shaun Parvez, both analysts at Cowen and Co., are concluding that Sprint Nextel “may be on the verge of turning around” before year’s end.

Indeed, the firm put Sprint Nextel in the “outperform” column, largely based on rumors of a sale to Deutsche Telekom AG. Such a transaction would face an uphill climb, however.

The decline in Sprint Nextel’s subscriber base is mostly due to a smaller postpaid and affiliate base, the company reported. And more losses are sure to come from that end following Qwest Communications International Inc.’s decision last week to move its wireless resale business from Sprint Nextel to Verizon Wireless.

Sprint Nextel ended the quarter with 39.7 million postpaid subscribers, 4.4 million prepaid and 8.7 million from wholesale and affiliates. The carrier lost about 1 million iDEN customers and 100,000 CDMA subscribers during the quarter. The iDEN losses were fewer than expected, and the CDMA losses were more than expected, wrote Ric Prentiss, an analyst with Raymond James.

More than 35.5 million customers are using the carrier’s CDMA network while 15.7 million are on the iDEN network and 1.6 million users are accessing both networks using dual-mode handsets, the carrier said.

The company reported postpaid churn of 2.45% for the quarter, which is up slightly from the 2.3% it reported a year ago. The company also reported heavier losses from its Boost prepaid subscriber base, with a churn rate of 9.9%, up from the 7.5% it reported in the previous quarter. While the carrier lost a half-million Boost iDEN customers, it also gained 300,000 Boost CDMA customers, Prentiss wrote. The carrier’s Boost iDEN service is a traditional prepaid service, while its CDMA-based service is an unlimited local service similar to Leap Wireless International Inc. and MetroPCS Communications Inc.

Average revenue per user (ARPU) from postpaid CDMA customers hit just short of $56.

“Compared to the first quarter of 2007, CDMA ARPU declined about $2 and iDEN ARPU was lower by about $6,” the carrier reported. Prepaid ARPU was about $29, which was also down from $32 a year prior. Data revenues grew 19% overall from the year-ago period to an average of $11.50 per customers per month.