Sprint: Our Monetary Loss from iPhone was Not Very Bad

The nation’s third-largest wireless carrier reported losses that were better than analysts had expected, owing mainly to the Apple (NASDAQ:AAPL) iPhone. Sprint Nextel, Inc. (NYSE:S) sold approximately 1.8 million iPhones last quarter in what was its first period selling the phone after paying a costly subsidy for its usage. The carrier, as its rivals AT&T (NYSE:T) and Verizon (NYSE:VZ) already do, views the device as a way of luring customers into long term contracts.

All three carriers actually purchase and sell the iPhone at a loss as a way of generating increased average revenue per user (or ARPU) over the long term duration of a contract, with Sprint gaining more from monthly subscribers than analysts expected. According to analysts surveyed by Bloomberg, both sales and ARPU were slightly above expectations. Sales were up 5.1 percent to $8.72 billion against expectations of $8.7 billion, and ARPU was up to $58.59 from expectations of $58.11.

Nevertheless, this last quarter represented the closing of five straight years of losses, with the stock losing 45 percent of its value last year. Furthermore, net losses for the quarter grew to $1.3 billion and 43 cents per share from $929 million and 31 cents a share a year ago. The total of new contract subscribers was also significantly lower at 161,000 (about 50,000 lower than average estimates), and churn was also slightly more than expected, at 1.98 percent as compared to the 1.89.

This past year saw Sprint consolidate both its business and consumer division into one, and half its top management positions, from eight to four.  Also, to compete with its two main rivals, Sprint will be building a higher-speed network, and will be working with LightSquared Inc., a venture launched by the billionaire Philip Falcone.

Presently, Sprint is waiting on LightSquared to received regulatory approval, after which they will have an 11-year deal for a fourth generation, or 4G, network in return for about $9 billion in payments and $4.5 billion in credits. However, the Federal Communications Commission is concerned that the service’s signals interfere with certain global positioning systems, including those used by boats, cars, and perhaps most worrisome, planes.

James Ratcliffe of Barclays Capital emphasized, though, that “the ARPU is encouraging because it’s indicative of a long-term trend driving the business.”  Ratcliffe went on to state that due to the losses outlaid to Apple in buying iPhones, that “this year and next are going to be unattractive financially,” with potential turnaround not expected until 2014. Barclays currently rates the stock as “neutral.”

To contact the reporter on this story: Jonathan Morris at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com