Sprint Raises Outlook After Fewer Users Leave Than Projected

Sprint Corp. shares rose after the carrier boosted its full-year forecast and reported first-quarter sales that topped analysts’ estimates even in the face of intensifying wireless competition.

Revenue increased to $8.88 billion as Sprint held onto more subscribers than expected, the Overland Park, Kansas-based company said today in a statement. That topped the $8.77 billion that analysts had estimated on average. Sprint lost 231,000 branded monthly subscribers in the quarter and 333,000 total. Analysts had projected 408,000 total monthly customer losses.

The unprofitable carrier limited subscriber losses by matching rivals’ offers with phone financing and group offers it calls Framily plans, which feature monthly payment reductions as the size of the group increases. Still, the ongoing customer erosion may bring more urgency to SoftBank Corp. Chief Executive Officer Masayoshi Son’s attempts to persuade U.S. regulators to consider allowing Sprint and T-Mobile to combine to create a more competitive No. 3 wireless provider. Sprint is owned by Tokyo-based SoftBank.

“Sprint has been improving over the past few quarters,” said Jan Dawson, an analyst with Jackdaw Research, based in Provo, Utah. “They have been marketing the Framily plan and working hard to get churn lower.”

The company said it now has almost 3 million customers on Framily plans.

Higher Forecast

Sprint raised its forecast for 2014 adjusted earnings before interest, taxes, depreciation and amortization to as much as $6.9 billion from a prior projection of as much as $6.7 billion.

Sprint rose 11 percent to $8.27 at the close in New York, the most in more than a year.

The stock had fallen 31 percent this year through yesterday, weighed down by concerns about fiercer competition and mounting costs to upgrade its network after shutting down its older Nextel network.

As Sprint’s Spark high-speed network upgrades continue, service will improve and lead to the company adding monthly subscribers in the last six months of the year, Chief Executive Officer Dan Hesse said on an earnings call today. This could signal a major milestone for Sprint, which has consistently lost customers for years.

Network Upgrades

“As our network perception improves and we get Spark rolled out, we’ll have network become a larger and larger part of our message,” Hesse said. The quality of the network is crucial to lowering churn and adding customers, he said.

Sprint is spending about $16 billion over two years on network upgrades, playing catch-up with AT&T Inc. and Verizon Communications Inc. in a network standard called long-term evolution, or LTE. LTE delivers fast Internet access, allowing users to stream video and download music.

The company still posted its 25th net loss in 26 quarters amid the industry’s battle for customers with price promotions, discounts and network upgrades. Its first-quarter net loss narrowed to $151 million, or 4 cents a share, from a loss of $643 million, or 21 cents, a year ago.

Sprint’s average contract customer’s phone bill was $63.52 last quarter, down from $64.11 in the previous three months. The company said that drop was because of the addition of more tablet users which generate lower revenue.

AT&T, Verizon

Including customers Sprint acquired in its purchase of U.S. Cellular Corp. assets, the total average bill was $62.98. Analysts had projected $63.72, based on an average of eight estimates compiled by Bloomberg.

Sprint added 516,000 tablets in the quarter, helping to partially offset the loss of about 750,000 phone customers, New Street Research analyst Jonathan Chaplin wrote in a research note today.

AT&T gained 625,000 monthly subscribers in the first quarter, almost three times the amount analysts were expecting.

On the other hand, Verizon had a net decline in phone subscribers for the first time, losing 138,000 monthly phone customers in a sign that AT&T and T-Mobile US Inc. are making headway in stealing away users. Thanks to more tablets users, Verizon gained a net total of 539,000 contract customers.

T-Mobile, which was the first to introduce phone purchase payment plans and buyout offers to lure customers out of competitors’ contracts, is expected to have added about 1 million monthly customers in the first quarter, according to the average of nine estimates from analysts surveyed by Bloomberg. T-Mobile plans to report results on May 1.

Music Offerings

Sprint’s wireless margin was 23.4 percent, the highest in almost six years and beating analysts’ average estimate of 21.04 percent. Sprint’s margins are about half as wide as Verizon, the most profitable wireless carrier.

At an event in New York today, Sprint introduced an exclusive new phone, the HTC One M8 Harman Kardon edition with high-definition audio and clearer sound quality for compressed digital music.

Sprint also said it will give customers access to Spotify to play music on demand without advertisements. Customers on a Framily plan will get Spotify Premium for free for six months. For 18 months after the free period, the service will cost a discounted $7.99 a month for plans with as many as five users and $4.99 for six to 10 users.

“This shows the importance of differentiation at a time when everyone is getting outshouted by T-Mobile,” Avi Greengart, an analyst with Current Analysis, said in an interview at the event.

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