http://www.kansascity.com/2012/02/08/3416529/sprints-iphone-sales-attract-new.html
iPhone sales attract new customers, balloon Sprints losses
Subsidies for iPhone, improving wireless network hurt bottom line, CEO says, but will pay off later. Analysts remain cautious.
After four struggling years, Sprint Nextel Corp. says it has reached a turning point in the wireless carriers long turnaround.
The Overland Park-based company boasted Wednesday in its year-end report that it is gaining customers and revenues.
And the $1.3 billion in losses it reported the worst quarterly hit since 2008 came from weighty investments in the companys future, not from the customer satisfaction and wireless service miscues of its past.
Sprint began to spend heavily to provide iPhones, which it offered for the first time in October. And it opened its wallet to begin a two-year upgrade of its wireless communications network.
Although analysts have concerns about Sprints plan, chief executive Dan Hesse declared the company fundamentally fit and ready for investment after four years of laboring to end its problems.
Its (been about) getting the company healthy again, Hesse said. Its being healthy enough to take on these two big investments.
In Sprints calculations, the payoff from its growth plans wont come for a couple more years. Sprint is counting on the network changes to cut in half its cost of providing service even as its customer count and revenues continue to grow. More money then would end up in Sprints pockets.
Thats the tailwind going into future years, Hesse said.
Analysts werent sure of the companys chances for reaching such a distant horizon, given the plans complexity and the industrys intense competition.
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, Barclays Capital analyst James Ratcliffe told Bloomberg News.
Sprint shares shed 4 cents Wednesday and closed at $2.41.
Last year saw unprecedented competition among the big three carriers for customers in a slow-growing market. The industry reeled first at the news that No. 2 wireless operator AT&T Inc. would buy No. 4 T-Mobile USA, and again when regulators killed the deal.
Welcome to the wireless industry, Hesse said. Its the wild west.
Sprint said iPhones helped it add 1.6 million subscribers in the final three months of 2011.
It now serves a record 55 million customers, in part because 40 percent of those iPhones went to new subscribers rather than to upgrade existing customers phones. Sprint heavily promotes its unlimited data plans for smartphones.
Revenues got a boost from a biggest-ever jump in the average customers bill. At $8.7 billion, Sprints revenues were up 5 percent over the same quarter last year and the highest theyve been since summer 2008.
Sprints $1.3 billion loss jumped 40 percent from a year ago.
Blame that second phase of Sprints plan investing for the future.
Every one of those iPhones cost Sprint hundreds of dollars because, like other carriers, it charges customers less for the phones than it pays Apple Inc.
But Sprint sees each iPhone subsidy as a down payment on the even greater amount of revenue those customers will deliver in coming years. The company expects to attract more customers with the iPhone and to keep them longer adding revenues it otherwise would not collect.
Earnings also suffered from the early costs of rolling out Sprints advanced wireless network of towers, radios and other equipment. Network Vision, as Sprint calls the upgrade, has advanced on schedule and on budget but will take two more years of heavy spending to complete.
Network Vision, however, allows Sprint to start shutting down its Nextel network that has kept its costs to provide service much higher than the costs of rival carriers. For example, Sprint will be able to shed 30,000 of the 68,000 cellular towers it currently uses.
Ending Nextel also means each of its remaining 6.25 million customers most subscribing through business plans will find new service as their employers seek bids from several carriers. Sprint is likely to attract a disproportionate share to its growing Sprint network, but it wont keep them all, Hesse said.
By then, Hesse said, Sprints network upgrade will have cut in half the cost of each gigabyte of wireless capacity it provides to customers. And the company will continue to build revenues with more customers and higher average bills.
Sprints new phase, its investment in growth, marks a sharp break from its previous four years.
The company badly damaged by its 2005 merger with Nextel Partners struggled to restore its brand name, slashed costs and scrimped on investments in its two networks.
Hesse said the company saved $10 billion it might have spent in the last four years until now when the network technology it wanted became available.
Sprint had been trimming its losses last year ahead of the fourth-quarter jolt. For all of 2011, it lost $2.89 billion instead of the $3.47 billion it lost a year earlier.
Revenues neared $32.7 billion, a 3 percent improvement over 2010.
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