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Sprint CEO Predicts Return to Subscriber Growth in 2014

Sprint Corp. (S) Chief Executive Officer Dan Hesse predicted the carrier would begin adding monthly contract customers in 2014 after the shutdown of its ill-fated Nextel network last month.

The company will continue to shed subscribers in the coming months because of the Nextel closing before rebounding next year, Hesse said today in an interview. Sprint rose 7.3 percent to $6.16 at the close in New York.

“We’re glad to get the second quarter behind us,” Hesse said. “People underappreciate the size of the effort involved with the turndown of the Nextel network -- it is larger than most expected. We’re not finished yet, but it is gradually getting back to normal.”

A swing to user gains would mark an end to a seven-year streak in which more than 10 million monthly-contract subscribers left Overland Park, Kansas-based Sprint.

“I may have to change my numbers,” John Hodulik, an analyst with UBS AG in New York, said in response to Hesse’s forecast. Hodulik’s current estimates call for a loss of 200,000 monthly subscribers next year, with a full-year gain not coming until 2015.

Sprint, which was acquired by SoftBank Corp. (9984) this month for $21.6 billion, pulled the plug on the Nextel system on June 30 as it revamps its technology. The company lost 1.05 million monthly subscribers in the period, largely because of Nextel users departing. Analysts projected a loss of 872,000.

$36 Billion

Since buying Nextel Communications Inc. for $36 billion in 2005, the company had struggled to integrate the network with its own and wrote down most of the purchase price. Sprint is now focused on building a faster system using a standard called long-term evolution, or LTE, helping it compete with larger rivals Verizon Wireless and AT&T Inc. (T)

Sprint posted a loss of $1.6 billion, or 53 cents a share, in the second quarter, wider than the 31 cents estimated by analysts. The Nextel shutdown buoyed depreciation expenses, and Sprint had to spend extra money to break so-called backhaul access contracts, adding costs of 21 cents a share.

Sales rose 0.4 percent from a year earlier to $8.88 billion, helped by a higher rate of revenue per customer, Sprint said. That beat the $8.73 billion average estimate of analysts, according to data compiled by Bloomberg.

“Investors may have to be patient: Subscriber trends will likely remain lackluster for the next couple of quarters as Sprint focuses on the network upgrade,” Jonathan Chaplin, an analyst with New Street Research in New York, said today in a research note. Chaplin has a buy rating on the stock.

Higher Bills

The carrier’s average customer phone bill grew to $64.20 from $63.38 a year earlier. Analysts had projected $63.69. Sprint also said it sold 1.4 million units of Apple Inc. (AAPL)’s iPhone.

Tokyo-based SoftBank, which also reported earnings for the April-June quarter today, has used the iPhone to drive customer growth in its home market. It added 810,500 users over the three months, outpacing its two larger rivals in Japan.

SoftBank said net income rose to 238.3 billion yen ($2.4 billion) from 105.6 billion yen a year earlier as it boosted subscribers and increased profit margins. The result beat the 198 billion-yen median estimate of three analysts surveyed by Bloomberg News.

Cash Infusion

SoftBank’s takeover included a $5 billion cash infusion, giving Sprint money to bolster its network and pursue its own acquisitions. Earlier this month, Sprint bought out the remaining shares of Clearwire Corp. for $3.9 billion, giving it full control of a company that it majority owned. The deal provides Sprint with a large swath of airwaves that it will use to improve its network.

To stand out from rivals, Sprint pledged this month to give contract customers unlimited service as long as they remain with the company. Still, its competitors are moving ahead with their own promotions. Verizon Wireless and AT&T have both followed T-Mobile US Inc. (TMUS)’s lead in making it easier for customers to upgrade their phones.

Sprint may be the only major carrier to lose contract customers in the second quarter. Verizon Wireless added 941,000 monthly subscribers, while AT&T gained 551,000. T-Mobile, meanwhile, added monthly contract customers last quarter for the first time in three years, according to people familiar with the matter. The company will report its results on Aug. 8.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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