With the company busy spending to build out LTE, expectations for Sprint Nextel (NYSE:S, news, filings) to beat estimates in the first quarter weren’t high, but that’s what they did this morning. Revenues of $8.73B were slightly higher than expected, while the net loss per share of $0.29 easily better than the composite analyst guess of $0.41. The markets seem to like the results, as the stock is up 5% in the premarket.
Most of the attention is always on the wireless business of course, and on that front Sprint sold 1.5M iPhones, 44% of which were to new customers. That was enough to keep total net wireless subscriber adds above 1M for the quarter. They also saw an increase in retention for those upgrading from the Nextel platform, reaching 46%. That no doubt reflects the availability of the iPhone as an upgrade option.
But it’s actually the progress of their Network Vision project that many will be watching. Sprint says they’ve begun work on 25% of the sites they plan to upgrade this year, and they’re on track to launch LTE in six major cities this summer. Meanwhile, they’ve taken 1,300 iDEN sites off the air, with another 9,600 to follow in the next two quarters. They spent $104M in opex on the project, as well as $315 in capex.
On the wireline front, revenues finally dipped below the $1B mark for the first quarter, sinking to $998M. Adjusted OIBDA fell to $161M, yielding adjusted OIBDA margins of just 16.1% – another step downward. According to the company, most of the revenue decline came from reduced intercompany rates charged to the wireless side. Capex of $45M was actually an uptick, representing 4.5% of revenue – still as low as it gets in the sector of course.
Hmmm, that sounds like something they might do to put things in place for a sale of the wireline assets – a possibility for which there have long been rumors but no action. Might this finally fall into place in the second half? Either CenturyLink or Level 3 might be ready by then, and there remains a solid reason for Sprint to monetize it sooner rather than later as margins continue to drop.
If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!
Categories: Financials · Internet Backbones · Wireless
Join Our LinkedIn Group
I have long been on the trail of a Sprint wireline sale but with little to show for it.
My glutton for punishment question is what is the rationale for lowering intracompany rates charged to the wireless side?
It does look like the 161M oibda rates are headed down JPM estimates of the low 400Ms annually that looked so alarmist just last summer. {At this rate Sprint doesn’t look likely to even hit its 2012 estimate of 702 so who knows maybe there is downside here)
As Rob has said, some of the crap is available for 6x ebitda. Does Sprint even deserve the crap multiple and would anyone actually pay $2.4B for that thing given the difficulty in separating that asset?
The rationale could simply be bringing intracompany prices in-line with reality, or they could be setting things in place prior to a long term outsourcing contract that would go with a sale to the buyer of the wireline assets. You have to figure the endgame is nigh, but like you said we’ve been watching this for some time.
As for 6x and $2.4B, who knows – it could happen. The real question is whether Sprint has admitted to itself that this business is not worth nearly as much as they think it is.