Tough Market, Merging Pains Hobble Sprint Nextel Profits

Times are tough at Sprint Nextel. The company reported losing 337,000 post-paid customers and suffered a 77 percent decline in third-quarter profits during a period that also saw the struggling company remove its CEO.

The Reston, Va.-based communication company, which trails Verizon Wireless and AT&T in terms of wireless market share, said Q3 income dropped to 2 cents per share, or US$64 million. Net income for the third quarter of last year, it noted, was $279 million, or 9 cents per share.

The company also reported a 4.2 percent decline in sales. The decline in earnings — largely due to its wallowing wireless business — was somewhat offset by improved results from its wireline segment, the company said.

The Q3 results “reflect mixed performance” as Sprint Nextel addresses “competitive market conditions” and deals with “credit market impacts” that are hurting some of its customers, Sprint Nextel Acting CEO and Chief Financial Officer Paul Saleh said.

Stopping the Bleeding

Saleh is filling the role held until last month by ousted former CEO Gary D. Forsee, the man who oversaw Sprint’s $36.8 billion takeover of Nextel in 2005. The goal of the merger was to find efficiency through integration of the two companies’ networks, but it hasn’t gone as smoothly as hoped and the company this year began cutting about 5,000 jobs to pare expenses.

Saleh accentuated the positive. “In the quarter, our Sprint Ahead marketing campaign gained traction, we improved our device portfolio, and we continued to achieve best-ever network performance,” he said. “Going forward, our clear mandate is to improve the customer experience at every touchpoint and simplify our business. We also plan to focus more resources on customer retention.”

Stuck in Reverse

Consolidated net operating revenues in the quarter were $10 billion, about a half-billion-dollars less than the company earned in the third quarter of 2006. The company is headed toward its first yearly drop in overall sales in four years, and it rescinded its earlier prediction of double-digit profit growth during 2009.

The bottom line for Sprint Nextel is that its metrics continue to go in a direction opposite to those of its competitors, Strategy Analytics analyst Philip Kendall said.

“It was yet another challenging quarter for Sprint Nextel,” Kendall told the E-Commerce Times. “They keep talking up the improvements they are making, such as having the best-ever network quality, that their marketing campaigns are gaining traction, that they have a more competitive handset line-up and they’re improving customer care. But it is hard to see too much evidence of that in their results.”

A Widening Gap

Kendall noted Sprint Nextel has lost about 241,000 direct post-paid customers during the past 12 months while Verizon Wireless and AT&T gained 6.8 million and 3.7 million respectively. He also pointed out that Sprint Nextel’s average revenue per user is down 5.5 percent year-on-year compared with 2 percent growth at Verizon Wireless and AT&T.

Additionally, Sprint Nextel’s 3 percent year-on-year decline in total service revenues is in sharp contrast to 15 percent growth at Verizon Wireless and 14 percent at AT&T, said Kendall. Operating income before depreciation and amortization (OIBDA) at Sprint Nextel slid 17 percent year-on-year while AT&T’s increased 23 percent and Verizon Wireless saw its OIBDA grow 14 percent, said Kendall.

“So they remain in a really tough place,” he commented. “Given they have not done a great job of juggling two network technologies (code division multiple access and integrated digital enhanced network), adding a third to the mix with their impending WiMAX launch isn’t going to help matters.”

Wanted: Knight in Shining Armor

While it was a tougher-than-usual quarter for Sprint Nextel largely because AT&T launched the popular Apple iPhone, industry analyst Alan Chappel said the company’s problems go beyond that.

“I think the general consensus is they are still a sound company, but had some significant issues in senior management,” Chappel told the E-Commerce Times. “It’s easy to attribute this to the iPhone, but it’s more than that as Verizon also experienced significant growth. We need to wait and see who takes over as CEO before offering a long-term prognostication.”