Nov. 1 (Bloomberg) -- Sprint Nextel Corp., the third-biggest U.S. mobile-phone company, reported a 77 percent drop in profit and cut its forecasts for next year after losing the most subscribers since at least 2005.

Third-quarter net income declined to $64 million, or 2 cents a share, and sales fell 4.2 percent to $10 billion, missing the $10.2 billion average estimate of analysts. The stock slipped 3 percent.

Sprint lost 337,000 contract customers, the most since it bought Nextel Communications Inc., amid complaints about dropped calls and poor reception. Sprint's board ousted Chief Executive Officer Gary Forsee last month, and the company said today it has to step up efforts to retain subscribers over the holidays.

``Their whole strategy is in disarray,'' said Michael Nelson, an analyst at Stanford Group Co. in New York. He advises holding the shares. The outlook ``still looks pretty dismal.''

The Reston, Virginia-based phone company is on course to post its first annual sales decline since 2003. After losing contract subscribers in four of the past five quarters, Sprint ended September with 41.4 million.

Sprint shares fell 52 cents to $16.58 at 4:03 p.m. in New York Stock Exchange composite trading. They have fallen 12 percent this year.

Losing Share

Wireless sales fell 4.1 percent to $8.7 billion, and Sprint's marketing strategy so far has been ineffective, Nelson said. Subscribers with long-term contracts paid an average bill of $59 a month. The average for the past 10 quarters was $62.30, according to data compiled by Bloomberg.

Profit in 2007 will be ``slightly below'' $11 billion, excluding merger-related costs, and sales will fall short of $41 billion, Sprint said, repeating its prediction from last month. Next year's profit won't reach an earlier goal for growth of at least 10 percent, the company said today.

Sprint ceded market share to AT&T Inc. and Verizon Wireless, the top two wireless carriers. San Antonio-based AT&T added 1.2 million contract customers in the quarter, while Basking Ridge, New Jersey-based Verizon Wireless signed up 1.7 million.

Subscriber gains will ``continue to be pressured'' in the fourth quarter, Sprint said. While it will still pursue new subscribers, the company plans to focus on retaining customers, acting CEO Paul Saleh said on a conference call.

``We are operating with a renewed sense of urgency,'' he said. The company will offer more customer-service features online and introduce new phones on Nextel's old network, where subscriber losses have been heaviest, he said.

Higher Turnover

Sprint's rate of contract subscriber turnover, or churn, was 2.3 percent, compared with an average of 2.1 percent in the previous 10 quarters, according to data compiled by Bloomberg.

Leaving out items such as expenses from the purchase of Nextel, third-quarter profit was 23 cents a share, topping the 22-cent average of analysts' estimates in a Bloomberg survey. A year earlier, profit was $279 million, or 9 cents.

Sprint had a tougher time than officials anticipated integrating the $36 billion purchase of Nextel and began firing 5,000 workers in January to weather customer defections.

AT&T benefited from new handsets such as Apple Inc.'s iPhone, which has the features of an iPod music player. Sprint countered with its own music-playing phones, such as High Tech Computer Corp.'s Touch and Samsung Electronics Co.'s UpStage.

`Iconic' Products

``You're going to see a whole lot more products that are going to be iconic in nature,'' such as Palm Inc.'s Centro and a new version of Research In Motion Ltd.'s BlackBerry Pearl, Saleh said in an interview. ``We're right there when it comes to innovation on devices.''

The company added 67,000 subscribers to its Boost Mobile brand, a service for customers who pay in advance. The company is doubling the coverage area of its Boost Unlimited service, which offers voice and text messages for a monthly charge, to reach 100 million potential customers.

Sprint expects capital spending of roughly $6.5 billion this year, down from an earlier forecast of $7.2 billion, because it has reduced dropped calls and improved quality on its networks sooner than expected, partly because there are fewer subscribers using the network, Saleh said.

WiMax Spending

Capital spending included $73 million for Sprint's new wireless data network, which can download Web pages and other Internet content five times faster than today's standard.

Expenses for the network, which uses a technology called WiMax, will be lower than the $2.5 billion Sprint had planned to spend through 2008. The company is still in discussions on an expected agreement with Clearwire Corp. to share the costs of construction, Saleh said.

The companies had planned to sign a contract by September. Sprint's board is considering changes to the WiMax service, such as merging the business with Clearwire, the Wall Street Journal reported today. Clearwire shares rose $1, or 4.9 percent, to $21.53 in Nasdaq Stock Market trading. Sprint spokeswoman Leigh Horner declined to comment on the report, and Clearwire spokeswoman Helen Chung didn't return a phone message.

Sprint still plans to start a limited WiMax service in the Chicago and Washington areas by the end of this year, Saleh said.

Sprint has stopped expanding retail sales for its Pivot joint venture with cable TV providers Comcast Corp., Time Warner Cable Inc., Cox Communications Inc. and Advance/Newhouse Communications. The product, linking wireless, Internet and TV service, was too difficult to set up for customers, Saleh said.

``We are still very strategically aligned with the cable companies, and are working very hard on simplifying that offering,'' he said.

Six analysts suggest buying Sprint's stock, 20 recommend holding it and eight have ``sell'' ratings, according to data compiled by Bloomberg.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net.

Last Updated: November 1, 2007 16:15 EDT