NEW YORK Sprint Nextel Corp (S.N), which is seeking to sell 70 percent of itself to Japan's SoftBank Corp (9984.T), posted higher fourth-quarter revenue on Thursday, but its subscriber numbers fell short of some Wall Street estimates.
Overall, the No. 3 U.S. mobile service provider reported smaller-than-expected subscriber losses, but analysts were disappointed with the growth of its Sprint network. It is shutting its Nextel network by the end of June.
It added 401,000 Sprint customers in the quarter, including 333,000 that moved from Nextel. That left analysts concerned that it had to depend so heavily on Nextel customers.
"I would rather they grow the Sprint business faster than they did and shut down the Nextel business faster," said Hudson Square Research analyst Todd Rethemeier, who had expected the company to add 600,000 Sprint customers in the quarter.
Sprint Chief Executive Dan Hesse told analysts on a conference call he was unhappy with the 1.98 percent churn rate in the fourth quarter, a measure of customer defections. It was higher than the third-quarter rate.
Hesse blamed the increase on a massive network upgrade project that caused some customers to turn away, including an entire company that hung up on Sprint services at the same time Sprint was moving its users from the Nextel network.
But Hesse said the numbers should improve after the shuttering of the Nextel network and Sprint made more progress in its network upgrade and had more success selling tablet computers such as Apple's iPad.
"We think we'll have good numbers on the Sprint side in the second half of the year," Hesse told Reuters in an interview.
Sprint's bigger rivals have reported strong growth from connecting devices such as tablets to their network via data share plans that allow customers to add several devices to their monthly smartphone data allowance.
But Hesse said that he is not contemplating moving to data share plans at this point.
Hesse said that Sprint will emerge as a more competitive company after the planned closing at midyear of the $20 billion deal with SoftBank, a highly successful competitor in Japan.
NO CLEARWIRE NEWS
On top of its SoftBank deal, Sprint is looking to buy out Clearwire Corp CLWR.O for $2.97 per share. Sprint, which is the majority owner of the mobile broadband network operator, needs approval from a majority of Clearwire's minority shareholders and is facing potential obstacles.
The minority shareholders have complained about the deal's price, and satellite television operator Dish Network Corp (DISH.O) countered with an offer of $3.30 per share last month.
While Clearwire recommended the Sprint deal to shareholders in a proxy filing last week, it said that it is still reviewing the Dish offer.
"It is their duty to try to get the best they can for their shareholders," said Hesse, who pointed to the recommendation in the proxy when asked if he might raise Sprint's bid. "Both Clearwire and Sprint are working to get our transaction approved."
CHURN NEEDS TO IMPROVE
Sprint posted a net loss of 243,000 subscribers in the quarter, which was better than the average estimate of a loss of 292,000 from five analysts contacted by Reuters.
By comparison, bigger rival AT&T Inc (T.N) added 780,000 subscribers in the quarter and market leader Verizon Wireless (VZ.N)(VOD.L) added 2.1 million net subscribers.
However, Sprint said the Apple Inc (AAPL.O) iPhone helped win new customers. Of the 2.2 million iPhones it sold in the quarter, 38 percent were to customers who were new to Sprint.
Sprint said on the conference call that it would be hit by a net loss of roughly 1.3 million to 1.4 million prepaid customers in the second quarter because of a regulatory change related to customers who receive a government subsidy for some cellphone users.
The change will contribute to net customer losses of 500,000 to 600,000 in the first half of 2013 at wholesale customers that rent space on Sprint's network.
Sprint, which is spending heavily to upgrade its network, forecast 2013 adjusted operating income before depreciation and amortization (OIBDA) of $5.2 billion to $5.5 billion.
Guggenheim Securities analyst Shing Yin said the outlook "is probably conservative" as he believes that Sprint may end up posting higher 2013 OIBDA.
Sprint reported a wireless service margin of 9.3 percent based on adjusted OIBDA, slightly below the 9.6 percent expected by the five analysts contacted by Reuters.
Yin said he was pleased that the number was not as bad as some investors had feared since margins also declined at Verizon Wireless and AT&T.
"That's encouraging because after AT&T and Verizon's report last month there was some fear we'd see a negative margin surprise at Sprint," he said.
Sprint posted a quarterly loss of $1.32 billion, or 44 cents per share, compared with a loss of $1.30 billion, or 43 cents per share, in the year-ago quarter. Revenue rose to $9.01 billion from $8.72 billion. Wall Street expected $8.92 billion, according to Thomson Reuters I/B/E/S.
Sprint shares were down 7 cents, or 1.2 percent, to $5.70 in early afternoon trade on the New York Stock Exchange.
(Reporting by Sinead Carew; Editing by Peter Lauria, Jeffrey Benkoe and Steve Orlofsky)