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Sprint Falls Most Since 2008 as Results Miss Expectations

Sprint Falls Most Since 2008
Sprint was expected to lose 25,000 contract subscribers, according to the average estimate of six analysts compiled by Bloomberg. Photographer: Ramin Talaie/Bloomberg

July 28 (Bloomberg) -- Sprint Nextel Corp., the third-largest U.S. mobile-phone carrier, fell the most since 2008 in intraday trading after reporting second-quarter results and client losses that missed analysts’ estimates.

The second-quarter loss widened to $847 million, or 28 cents a share, from $760 million, or 25 cents, a year earlier, the Overland Park, Kansas-based carrier said today. Operating income before depreciation and amortization fell 12 percent to $1.31 billion, missing the $1.48 billion average estimate of analysts compiled by Bloomberg, as client retention costs rose.

Sprint lost 101,000 customers on monthly contracts after dropping 114,000 in the previous three-month period, starting a new losing streak after reporting a gain in the lucrative users in the fourth quarter of 2010 for the first time in more than four years. The carrier is promoting handsets such as HTC Corp.’s Evo to compete with AT&T Inc. and Verizon Wireless, which both now carry Apple Inc.’s iPhone.

“It’s costing them more just to maintain their base than anyone expected,” said Walter Piecyk, an analyst at BTIG LLC in New York who advises selling the shares. Sprint said it spent an extra $120 million last quarter on customer acquisition and retention costs to stay competitive.

Sprint fell 82 cents, or 16 percent, to $4.34 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest intraday drop since Dec. 1, 2008. The shares have gained 2.6 percent this year.

Analysts predicted a loss of 12 cents, the average of estimates compiled by Bloomberg. Sprint said it had one-time costs of 22 cents a share related to equity losses and taxes.

Falcone Deal

Sprint was expected to lose 25,000 contract subscribers, according to the average estimate of six analysts compiled by Bloomberg.

Verizon, the largest wireless carrier, added 1.3 million contract subscribers last quarter, luring customers with the iPhone and its new high-speed network, called 4G. AT&T, the second-biggest carrier, pulled in 331,000 contract customers.

“This was a very unusual quarter in terms of the level of competitive activity, but we emerged from the quarter very strong, with June being by far the best net subscriber month of the year so far,” Sprint Chief Executive Officer Dan Hesse said today in a phone interview. “We’re entering the third quarter with some momentum, and that’s why we reaffirmed all of our guidance for the year.”

Forecast for Year

The company said today it continues to expect an increase in contract subscribers in 2011, along with growth in the average monthly revenue from those customers. Operating income before depreciation and amortization will be little changed from 2010, excluding as much as $250 million in expenses for a network investment plan, the company said.

Sprint also said today it agreed to a 15-year deal with billionaire Philip Falcone’s LightSquared Inc. to share network expansion costs and equipment.

LightSquared will pay Sprint to build and operate a nationwide wireless network that uses high-speed long-term evolution, or LTE, technology. During an 11-year period, LightSquared will pay Sprint $9 billion in cash and credits valued at about $4.5 billion. Sprint can use the credits to acquire capacity from LightSquared, which plans to offer wholesale wireless service.

Sprint has pledged $5 billion to upgrade its network over the next three to five years. Using LightSquared’s network to reduce the load on its own network will help Sprint handle the surge in demand for wireless data.

Sales rose 3.6 percent to $8.31 billion, matching the average analyst estimate.

Churn, or the rate at which customers left, was 1.75 percent for users on contracts, compared with the 1.71 percent average estimate of analysts. Average monthly revenue from those clients was $57, compared with the $56.25 average estimate.

(Sprint held a conference call today to discuss results. Go to LIVE <GO> to access the call.)

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

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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