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4G matters: Sprint poised to be a pain to Verizon, AT&T

Sprint is officially back in the wireless carrier race as it added 644,000 subscribers in the third quarter, its best showing since 2006. Of those subscribers, 354,000 were postpaid.
Written by Larry Dignan, Contributor

Sprint is officially back in the wireless carrier race as it added 644,000 subscribers in the third quarter, its best showing since 2006. Of those subscribers, 354,000 were postpaid.

Why is that a big deal? Last quarter, Sprint finally had net subscribers after years of losses. In the third quarter, Sprint said demand for its 4G phones---Samsung Epic and HTC Evo---remained strong. Now there's a price for that. Sprint's third quarter loss was larger than expected due to device subsidies and 4G upgrades.

However, the subscriber totals---especially on the postpaid side---were telling. To wit:

When you strip out device connections and prepaid additions, the postpaid subscribers are the ones that line the pockets. These folks buy the smartphones and get the data plans. At the least, Sprint is about to become a pain in the side of larger rivals. Sprint CEO Dan Hesse said that customers have switched from rivals on a net basis. Postpaid churn was 1.93 percent---a solid figure for Sprint. Sprint is also a major player on the prepaid side with Virgin Mobile and Boost Mobile.

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Add it up and you can only conclude that Sprint's 4G effort has paid off and that momentum can continue as the carrier moves into markets like New York and San Francisco with speedy data services.

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Rest assured, Sprint isn't the poster child for perfection. The company reported a third quarter net loss of $911 million, or 30 cents a share. Third quarter revenue of $8.15 billion, was the first gain in years (albeit at 1 percent). Wall Street was expecting a loss of 28 cents a share on revenue of $8.04 billion.

Analysts were mixed on the results. Barclays Capital analyst James Ratcliffe said:

Sprint's 3Q10 results showed improved subscriber results, while heavy upgrade activity and higher prepaid gross adds hurt margins. Postpaid net losses were inline, while prepaid growth was well above forecast, primarily on better gross adds. Wireless revenue better than expected on higher equipment revenue from upgrade activity, wireless EBITDA below our below-consensus forecast due to margin pressure. Wireline margins and EBITDA above forecast.

Deutsche Bank analyst Brett Feldman noted that Sprint still is losing post paid subscribers overall.

Overall, results were in-line to slightly better than expected. The headline result is a loss of 107k post paid subs. This is better than consensus (-139k), but not quite in positive territory. Post paid gross adds look solid (up from 2Q as expected on 4G sales), but the seasonal uplift in churn kept net adds in slightly negative territory.

By the numbers:

  • Sprint had 48.8 million subscribers at the end of the third quarter.
  • Postpaid churn of 1.93 percent was better than the 2.17 percent a year ago. Prepaid churn was 5.32 percent in the third quarter, down from 6.65 percent from a year ago.
  • 10 percent of postpaid customers upgraded their handsets.

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