Sprint shows ‘signs of genuine progress’ in fourth-quarter earnings

02/11/2014 6:31 AM

05/05/2014 11:01 PM

Sprint Corp. capped a tumultuous year of deal wrangling and network rebuilding by posting what one analyst called “signs of genuine progress” in its fourth-quarter report released Tuesday.

The Overland Park-based wireless company said it added 477,000 subscribers in the last three months of 2013, boosted its revenues and trimmed its financial losses, even in the face of gains by its wireless industry rivals.

“Sprint showed signs of genuine progress in righting the ship,” said an analysis written by Craig Moffett of MoffettNathanson Research, who is one of Sprint’s more prominent doubters. “Investors will likely view the results as a clear positive step towards stabilization.”

Sprint’s chief financial officer, Joe Euteneuer, told analysts during a conference call that the company had “turned the corner” on how much its revenues exceed its operating costs of running the business, though the overall results weren’t yet where he’d like them to be.

The wireless company — one of the Kansas City area’s largest employers — finished the year with 55.35 million subscribers, slightly fewer than it had at the end of 2012. And its $3 billion loss for all of 2013 looked better only in comparison to the $4.4 billion loss a year earlier.

Sprint officials promised a stronger showing during the second half of this year. The company expects better subscriber numbers and stronger financial results after midyear once the first phase of its multibillion-dollar network upgrade is completed.

However, signs of progress could weaken the third-largest wireless carrier’s case for a merger with its smaller rival T-Mobile US Inc. Regulators have been openly skeptical of the idea, seeing four national carriers as providing more competition than three.

The companies have argued that by merging they would become a more formidable competitor for giants AT&T and Verizon.

Sprint chief executive Dan Hesse sidestepped a question Tuesday about his T-Mobile plans but kept alive the companies’ shared argument that some mergers would increase competition.

“I believe further consolidation in the U.S. wireless industry, outside the big two, outside of AT&T and Verizon because they’re so large, would be healthy would be good for the country, good for consumers,” Hesse told analysts.

Others are keeping the merger idea alive too.

Analyst Kevin Manning, with BMO Capital Markets, researched a Sprint/T-Mobile merger’s chances with the antitrust lawyers at the Department of Justice and the public interest tests at the Federal Communications Commission. His 36-page footnoted report on Monday took in precedents, market concentration scores, the companies’ competitive positions alone and the benefits of merging.

Washington’s “case to block a deal is less clear cut than we previously believed,” Manning wrote. “We believe Sprint and T-Mobile would present a compelling case for a deal which would likely change the consensus view of the likelihood for success.”

Sprint spent much of 2013 pushing Washington for approval of its $21.5 billion deal with Tokyo-based SoftBank Corp. SoftBank bought control of Sprint and financed Sprint’s battle against rival bidder Dish Network Corp. for control of Clearwire Corp., which had long been a network partner to Sprint.

At the same time, Sprint shut down its old Nextel network and spent heavily to remake its modern network. Both moves cost it customers during the year.

Hesse said the network upgrade had increased the rate at which Sprint lost existing customers because they could suffer more dropped calls and disruptions to voice service while the work was being done.

Once about 70 percent of a market’s upgrade is complete, he said, the subscriber losses start to fade and dip to lower levels than before the upgrade.

“This is a tough period of time, but the company is in much better shape once this is completed,” Hesse said.

Sprint’s better-than-expected results in the fourth quarter partly reflected the low expectations that industry analysts had set for the company. The details showed that Sprint’s showing was less than strong.

Its total subscriber numbers grew mostly by adding customers who buy service month to month. They pay lower average monthly bills than subscribers who sign two-year service contracts.

Sprint said its contract customer count declined by 69,000 in the last three months of the year. Verizon added 1.57 million contract customers, AT&T added 566,000 and T-Mobile added 869,000 thanks to its aggressive marketing.

All the contract customer totals also count contracts to connect tablets to the wireless networks. Those bring in less revenue than contracts to connect cellphones.

Hesse said he had made tablet sales a priority at Sprint during the quarter. He checked the sales results each day and said he even sent out “love notes” to the sales force members on their progress.

Sprint said it lost $1 billion in the fourth quarter, or 26 cents a share. It had lost $1.3 billion a year earlier. Sprint had reported a $383 million profit in the third quarter of 2013, its first such showing since 2007.

The recent loss included $165 million that went for severance and other expenses tied to layoffs and store closing plans the company is carrying out this year.

Revenues grew to $9.14 billion in the quarter, up from $9 billion a year earlier.

Shares of Sprint gained 21 cents Tuesday to $7.90.

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