Sprint Tells Investors ‘Measurable Progress’ is Being Made

By Jason Gertzen, The Kansas City Star, Mo.

Aug. 9–Look at the improvements, Gary Forsee told Sprint Nextel Corp. investors Wednesday morning.

“Our investments continue to produce measurable progress,” Forsee, Sprint’s chairman and chief executive officer, told Wall Street analysts in a conference call.

But plunging profits, climbing costs and ongoing challenges for the nation’s No. 3 wireless carrier proved too much for many investors to overlook as the day wore on.

Sprint shares ultimately dropped 2 percent in volatile trading after the company reported that second-quarter profits of 1 cent per share fell 90 percent from 10 cents a year earlier. Sales climbed 2 percent to $10.16 billion from $10 billion.

After accounting adjustments, Sprint tallied earnings of 25 cents a share, which topped expectations. Wall Street analysts on average were anticipating 22 cents a share for the second quarter, according to Thomson One Analytics.

It all made for a rollercoaster day of trading for Sprint shares as investors assessed the company’s prospects. The stock surged as much as 5 percent higher in premarket trading and moved up steadily through the morning. But it later dropped more than 5 percent and ended up closing at $19.77, down 45 cents in heavy trading.

This was a pivotal report for Sprint, the Kansas City region’s largest corporate employer. As Sprint has struggled over the past year, Forsee repeatedly promised that cost-cutting actions and other strategic moves would start to produce results in the second quarter.

The results were mixed.

For the first time in a year, Sprint did add subscribers on monthly calling contracts while boosting its overall customer count by 373,000, to 54 million. The rate of customer defections also dropped, and the company continued to make advances in selling wireless Internet connections and other data-oriented services.

But that good news was accompanied by signs of profit pressures. Sprint paid more in interest expenses, spent more on advertising and ramped up investments for what eventually could be $3 billion in spending for a new high-speed wireless network relying on WiMax technology.

“Sprint offered investors some glimmer of hope with its second-quarter results,” said Dave Novosel, who tracks telecommunications companies for Gimme Credit, a corporate bond research firm.

But Novosel added in a report Wednesday that the addition of 16,000 subscribers on monthly calling contracts and the modest sales gains “were not impressive.”

Sprint did demonstrate some progress. The results marked a rebound from a dismal first-quarter performance when the company lost $211 million.

Sprint’s business in helping cable companies provide telephone service is booming, Forsee said. It now serves more than 2 million subscribers.

Another effort combining cable TV and cell phone service also is moving ahead, launching in 20 markets and on track to reach 20 more by the end of the year.

“The disappointment is that it took us longer because we spent time on the back office to get that right before we took it into the marketplace,” Forsee said.

The wireless industry also sorts winners from losers by the numbers of new customers that carriers add.

AT&T Inc. and Verizon Wireless have been on a tear. During the second quarter, AT&T added 1.5 million new customers, boosting its overall count to 63.7 million, maintaining its top position. Verizon added 1.3 million new subscribers and finished with 62.1 million.

With its 54 million subscribers, Sprint has been slipping further behind its top rivals.

Some industry analysts point to the widening gap as evidence that Sprint is losing market share. Forsee disputed that notion Wednesday.

“Our share is holding up,” Forsee said.

Customer loyalty is the culprit, a problem drawing intensive intervention at Sprint.

Subscriber defections are measured with a statistic known as churn. For Sprint, this monthly figure was 2 percent, a slight improvement from earlier this year, but still nearly twice as high as Verizon’s.

Sprint executives contend that they are getting at least their fair share of new subscribers in the front door but post lower overall gains because they lose subscribers at a higher rate than some competitors.

“If our churn was 1 percent like it is for Verizon, our net additions would be significantly higher,” said Paul Saleh, Sprint’s chief financial officer.

Sprint is improving the quality of its wireless network and increasing the number of call center workers available to handle questions, Saleh said.

“In the second half of the year you will see more investment in customer care,” Saleh said. “There is a much more targeted effort in mining our customer base and making sure we are retaining our high-value customers.”

To reach Jason Gertzen, call 816-234-4899 or send e-mail to jgertzen@kcstar.com.

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