Sprint Loss Widens as IPhone Boosts Subsidies

By Scott Moritz - Feb 8, 2012 9:57 PM GMT+0700

Sprint Nextel Corp., the third- largest U.S. wireless carrier, reported a wider fourth-quarter loss after demand for Apple Inc. (AAPL)’s iPhone boosted costs to subsidize the device. The stock fell.

The net loss expanded to $1.3 billion, or 43 cents a share, from $929 million, or 31 cents, a year earlier, the Overland Park, Kansas-based carrier said today in a statement. The company said it had one-time costs of 8 cents a share from revaluing assets. Analysts predicted a loss of 38 cents, the average of estimates compiled by Bloomberg.

Sprint sold 1.8 million iPhones in the period, the first quarter of sales for the device the carrier is betting on to lure users and rebound from five years of losses. Sprint and larger rivals AT&T Inc. (T) and Verizon Wireless buy iPhones from Cupertino, California-based Apple and then sell them at a loss to get consumers to sign up for multiyear contracts.

“The financials are weak due to the amount of money they are sending to Cupertino,” James Ratcliffe, an analyst at Barclays Capital, said before the report. “This year and next are going to be unattractive financially. I think people who own Sprint might be looking more toward the prospects in 2014.”

The iPhone helped boost Sprint’s subsidy expenses to about $1.7 billion from about $1.2 billion a year earlier. The iPhone carries higher subsidy cost than other devices, Sprint said.

Sprint fell 5.6 percent to $2.31 at 9:55 a.m. New York time. It lost 45 percent last year, while Verizon and AT&T rose.

Subscriber Gains

Sales rose 5.1 percent to $8.72 billion. Analysts estimated $8.7 billion. The average monthly bill for contract users, excluding prepaid numbers, climbed to $58.59, compared with an average of $58.11 estimated by six analysts surveyed by Bloomberg. Sprint and competitors sell the iPhone at a loss to attract contract customers that generate higher average revenue per user, or ARPU.

“The ARPU is encouraging because it’s indicative of a long- term trend driving the business,” Ratcliffe said. A higher ARPU signals Sprint is earning return for investment in areas such as the iPhone, said Ratcliffe, who rates Sprint “neutral.”

UBS AG predicted Sprint would sell 1.9 million iPhones. Verizon Wireless, the biggest U.S. wireless carrier, sold 4.3 million iPhones last quarter and AT&T activated 7.6 million of the devices

Sprint added 161,000 contract subscribers, compared with the 211,000 average analyst estimate. The monthly defection rate, or churn, of contract customers was 1.98 percent. Analysts predicted 1.89 percent.

Spending Boost

Last month, Sprint said it would combine its business and consumer divisions into one operation. As a result eight top management positions consolidated into four, and the company said four executives are leaving.

Sprint said it would boost its capital spending to about $6 billion this year. To compete with AT&T and Verizon, Sprint is building a higher-speed network using the same technology the larger rivals have. It has also agreed to work with billionaire Philip Falcone’s wireless-network venture LightSquared Inc.

Last week, Sprint extended a deadline it had given LightSquared to gain regulatory approval for its service, a condition of the companies’ agreement, until mid-March. Under the deal, Sprint would build and operate LightSquared’s so- called fourth-generation network during an 11-year period in exchange for $9 billion in payments and an additional $4.5 billion in service credits.

LightSquared is awaiting clearance from the Federal Communications Commission as regulators weigh test results that show the service’s signals disrupt global-positioning system equipment used by cars, tractors, boats and planes.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net