Sprint reports smaller financial losses but higher customer defections

Sprint's Dan Hesse
Sprint's Dan Hesse The Associated Press

Sprint felt the heat of competition and its own disruptive network upgrade work as it shed nearly a half million subscribers during the first three months of the year.

The Overland Park wireless carrier on Tuesday said its customer count fell by 467,000 in the first quarter, compared with 415,000 it lost a year ago. The first quarter is traditionally weak for the wireless service industry.

Sprint shares jumped more than 11 percent partly on the company’s forecast that its contract customers will increase in the second half of the year and that its financial outlook is improving as well. Shares gained 84 cents and closed at $8.27.

Chief financial officer Joe Euteneuer said Sprint’s new Framily service plan will help in that cause. It gives a discount to customers who recruit additional subscribers under the friends-and-family plan Sprint calls Framily.

“We want our customers to be our sales advocates, to go out and get us more” customers, he said. “That’s really the power of the service.”

During the first quarter — in which Framily was available only a short while — subscriber losses included 231,000 customers under contract, which produce the most revenue for the company. Month-to-month subscriptions fell by 364,000.

Sprint ended March with 54.9 million customer connections, including 4.85 million non-phone devices. A year ago, it had 55.2 million subscribers.

Management attributed some of the decline to changes in how the federal Lifeline phone support program certifies eligible participants.

But the big hit, according to the company, came from unhappy customers who suffered blocked and dropped calls as Sprint crews work on ripping out and replacing the old voice network while building a new data network.

Sprint said its network upgrade will be mostly done at midyear and it will lose fewer customers because of it. It officially promised to increase its total number of customers under contract during the second half of his year.

Bill Ho, an industry observer with 556 Ventures LLC in Reston, Va., said it was noteworthy that the company flagged its own behavior during a highly competitive market.

No. 4 carrier T-Mobile US aggressively sought new customers in the quarter by agreeing to pay their early termination fees at other carriers if they switch. Sprint launched a similar program that expires next month.

Analysts had said AT&T and Verizon each posted an increase in subscribers under contract during the quarter but relied heavily on new tablet subscriptions to do so. Tablets generate less revenue for the wireless companies than cellphone contracts do.

Verizon in particular said its tablet and other non-phone connections grew more than its total of customers under contract. The upshot was its phone connections under contract declined by 100,000 in the quarter.

Analyst Craig Moffett of MoffettNathanson Research said Sprint suffered the same fate. Its contract subscriber count got a big boost from the 516,000 tablets that customers connected but still declined overall by the 231,000 Sprint reported.

All told, Sprint shed “a truly heart-stopping” number of phone subscribers, Moffett wrote in a note to clients.

Financially, however, Sprint fared better early this year. Its net loss totaled $151 million, down from the $643 million loss it suffered in the first three months of 2013.

Its operations earned a profit of $420 million, the best showing in seven years. The total doesn’t count interest expenses and other charges that led to the $151 million net loss. Its revenues totaled $8.9 billion, up from $8.8 billion a year earlier.

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