Prepaid Gains Rescue Sprint

Sprint Nextel (NYSE:S, news, filings) didn’t have a great Q1 with its postpaid customers, losing over a million of them yet again.  But this time they made up for much of it on the prepaid side with Boost Mobile and from sources like the Kindle.  Revenues of $8.2B were perhaps a tad light relative to expectations, still down $200M sequentially of course.  But cost savings brought adjusted EPS in at $0.03, which was actually a bit better than anticipated. 

Is Sprint turning it around?  Until their customer base stabilizes, it isn’t yet clear.  However, at this point investors will take what they can get, and having bad news mostly offset by good news is the best it has been in a while.  Postpaid subscribers may be the most coveted ones, but in some markets such as China it is prepaid that dominates the landscape and companies seem to thrive anyway.  While that means customers can switch more easily, in a way that adds liquidity to the subscriber base because it works both ways and the reaction can be swift.  Sprint is still churning off postpaid customers it pissed off a year or more ago, because they were locked in.  That prepaid subscriber numbers are climbing rapidly actually is a pretty good sign because those subscribers are much more of a leading indicator of network quality and customer service than those who are leaving.

On the wireline side, Sprint saw some deterioration in legacy voice and data revenues, while economic pressures held back growth in internet revenues such that overall wireline revenues declined 4% sequentially.  That seems to dovetail with the short term revenue pressures that Level 3 and Global Crossing have been seeing.  With greater legacy voice and data revenues, Sprint has greater exposure to churn in any environment, let alone one as tough as this one.

Remaining unresolved of course is whether or not Sprint chooses to outsource the operations of its cellular network to Ericsson.  Personally, I think they shouldn’t – but it may not be entirely in their own hands if the economy doesn’t start improving later this year.

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Categories: Financials · Internet Backbones · Wireless