Sprint Corp, the No. 3 U.S. mobile service provider, posted a wider quarterly loss due to hefty costs from shutting down its older Nextel network and it warned that customer defections would continue to hurt it in coming quarters.
Shares in Sprint (Overland Park, KS, USA), which recently sold 78 percent of its shares to Japan's SoftBank Corp (Tokyo), rose 1 percent on Tuesday morning as its revenue was better than expected.
But analysts worried whether Sprint can turn around subscriber losses in a bitterly competitive market where it needs to catch up to stronger rivals Verizon Wireless (New York City, NY, USA) and AT&T Inc (Dallas, TX, USA) and smaller rival T-Mobile US (Bellevue, WA, USA) is offering service price discounts.
Moffett Research analyst Craig Moffett is concerned that it might have to cut service prices in order to return to reporting quarterly net customer additions again.
"The risk of a price war is much higher than it has been in the past," said Moffett, who is worried that service discounts at will lure away Sprint customers. "People are struggling with concerns about what its going to cost to turn this ship around in particular in terms of competition."
Sprint has struggled with Nextel customer losses since it bought that company in 2005 and it finally shut down the network in the second quarter. While it expects savings from the shutdown, it will still be hurt by related customer defections, known in the industry as churn, this quarter.
And Sprint, which will use SoftBank investments and spectrum from Clearwire (Bellevue, WA, USA) to beef up its network, also expects customers to keep leaving while it works on a network upgrade for the rest of this year as its high-speed data service trails rivals'.
"Between now and then, those will be the headwinds," Sprint Chief Executive Dan Hesse told Reuters.
Some businesses who used the Nextel service have also decided to pull their employees from the Sprint network because of the Nextel network shutdown according to Hesse who expects the biggest exodus of those customers this quarter.
Nomura analyst Michael McCormack said the report was in line with his expectations but he worried about future quarters.
"They will have a hard time balancing return to subscriber growth against profitability," McCormack said.
Sprint lost 1.045 million contract customers in the quarter, more than the average estimate for a loss of almost 972,000 by four analysts contacted by Reuters. Their estimates ranged from a loss of 885,000 to 1.1 million customers.
The company said its Sprint-branded service added 194,000 customers in the quarter, but it would have posted a net decline of 170,000 without 364,000 users who moved from the Nextel network to the Sprint service.
In comparison, the top U.S. mobile service Verizon Wireless had 941,000 subscriber additions and the No. 2 provider AT&T added over 550,000 net new subscribers in the second quarter.
Sprint's second-quarter loss widened to $1.6 billion, or 53 cents per share, from loss of $1.4 billion, or 46 cents per share, in the year-ago quarter. Excluding unusual items Sprint's loss would have been 31 cents per share, or a penny worse than Wall Street expectations, according to Thomson Reuters I/B/E/S.
Revenue rose to $8.88 billion from $8.84 billion and was ahead of Wall Street estimates closer to $8.7 billion.
Sprint said this was driven by average revenue per user (ARPU) on the Sprint network, which increased to $64.20 in the quarter from $63.38 in the year-ago quarter as its customers spent more on wireless data services such as mobile web surfing.
"The highlight of the quarter for us was revenue and ARPU," said Hesse, who expects more ARPU growth in the coming quarters.
While Sprint has struggled to compete for years, SoftBank Chief Executive and founder Masayoshi Son is betting that he can help it to become a much stronger competitor.
SoftBank paid $21.6 billion to take control of Sprint on July 10 after months of battling with rival bidder Dish Network Corp (Meridian, CO, USA). SoftBank helped Sprint - previously the majority owner of Clearwire Corp - to take full control of Clearwire so it can use Clearwire's spectrum to boost Sprint's network.
After SoftBank's earnings report, also on Tuesday Son acknowledged that "Sprint's fight is no easy task" because of stiff competition from Verizon and AT&T.
Sprint said it expects 2013 adjusted operating income before depreciation and amortization (OIBDA) between 5.1 billion and $5.3 billion, including non-cash one-time costs related to its SoftBank deal and its July buyout of Clearwire.
But excluding these costs, Sprint said its 2013 target was for adjusted OIBDA between $5.5 billion and $5.7 billion, which is ahead of its previous goal to reach the high end of a $5.2 billion to $5.5 billion target range.
Sprint set its 2013 capital spending budget at $8 billion. Its shares were up 10 cents or 1.8 percent at $5.85 on the New York Stock Exchange after the news.
(Reporting by Sinead Carew; Editing by Richard Chang, Stephen Coates, Sofina Mirza-Reid and Marguerita Choy)