This story has been updated with comment from Sprint’s conference call with analysts.
Sprint Nextel managed to stem the exodus of its wireless subscribers to other carriers for the first time in three years in the second quarter, when it posted the addition of 111,000 net wireless subscribers.
The swing into the black came on the strength of Sprint’s prepaid and wholesale businesses, which helped offset weakness in the company’s postpaid segment.
Sprint lost 228,000 postpaid customers despite a decrease in the segment’s churn rate, which hit an all-time low of 1.85 percent. BTIG Research analyst Walter Piecyk attributed the improvement in Sprint’s postpaid churn to the launch of the Evo, the carrier’s first 4G smartphone.
In a conference call with analysts, Sprint CEO Dan Hesse said the Evo will help the company mitigate the impact of the iPhone 4, as the launch of the Palm Pre helped the company do last year.
“Let’s face it, I would not be perfectly honest with you if I didn’t say that every time Apple announces a new phone there’s not an impact in the market. We all feel it,” Hesse said. “We’ve mitigated the size of that impact versus previous years by having our own plan and handsets.”
Sprint’s Evo launch has not been without glitches. HTC has been dogged by component shortages and the Evo sold out shortly after its June 4 launch. Hesse said that he is in contact with HTC CEO Peter Chou about the Evo shortage and said the company is working to correct the problem.
“We could definitely sell more if we could get more,” he said. Component shortages have also proved problematic for Samsung and Apple this summer.
Hesse attributed the problems in the supply chain to unexpectedly steep demand resulting from improvements in the global economy. “A lot of capacity came offline as the economy went down,” he said. “All of the sudden, increased customer demand for these high-end devices is putting some strain on the supply chain.”
Sprint’s prepaid business was a bright spot in the company’s earnings with the addition of 173,000 customers and the company’s wholesale and affiliate segment also posted gains with the addition of 166,000 subscribers.
“We re-launched the Virgin Mobile brand, introduced Common CentsSM Mobile in about 700 Walmart stores this quarter, and we are encouraged by the customer response to Assurance WirelessSM, our government-subsidized program for qualified customers who need reliable wireless service,” Hesse said in a statement.
In response to a question from JP Morgan’s Mike McCormack about the credit ratings of Sprint’s new customers, Sprint said it wasn’t cutting its standards to get new subscribers.
“We have the right portfolio of brands, both postpaid and prepaid, to address any kind of economic situation a customer might be in,” Hesse said. As to whether gross subscriber addition growth is coming from relaxed credit scores, “the answer is no,” Hesse added.
Despite the gains in Sprint’s prepaid and wholesale segments, Bernstein Research analysts expressed concerns about heavy subscriber losses on Sprint’s iDEN network, where they said the company’s Boost brand remains focused. Sprint’s iDEN network lost almost 364,000 customers while its CDMA network added about 136,000 postpaid customers.
Calling the U.S. wireless market an “unforgiving venue for a turnaround,” Bernstein analysts said that “the sustainability of Sprint’s turnaround story remains relatively weak.”
Sprint’s postpaid ARPU came in at $55 for the second quarter, a slight decline from last year’s ARPU of $56. Prepaid ARPU was about $28, compared with $34 last year. Sprint said the year-over-year decline is due to the inclusion of Virgin Mobile and Assurance Wireless customers who have lower ARPU on average than that of Boost Mobile customers.
Overall, Sprint lost $760 million, or a loss of 25 cents per diluted share, on sales of $8 billion during the second quarter ended June 30. The losses were substantially higher than during the same period last year, when the company lost $384 million on sales of $8.14 billion. Sprint’s wireless subscriber base now stands at 48.17 million.
Looking ahead, the company said its net adds will remain positive for the rest of 2010 as losses in its postpaid base taper off from the first half of the year.
Sprint’s stock was up about five cents to $4.88 in mid-day trading on the NASDAQ.
