Can Sprint Stay in the Race?

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The country's third-largest wireless carrier, Sprint Nextel (NYSE: S  ) , came out with yet another set of gloomy quarterly figures, even though its first-quarter losses were narrower than what analysts had expected. The company's first-quarter revenue stood at $8.7 billion, a 5% increase from the prior-year period. The bottom line, on the other hand, stayed in the red with a loss of $863 million -- almost double that of the previous year. Time to find out which direction Sprint is headed.

Joining the next generation
Sprint is pouring in a lot of cash to roll out its very own 4G LTE network -- unfortunately a lot more than it has been able to generate out of its current operations. And with rivals AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) already ahead in the 4G LTE race, Sprint needs to catch up fast, or else it risks losing customers who seek a faster network. This comes at a time when more 4G-enabled smartphones and tablets are set to be released this year. For instance, Apple's (Nasdaq: AAPL  ) next-generation iPhone 5, expected to be launched later this year, is expected to have LTE capabilities. It seems Sprint has some serious work to do.

Subscriber woes
At the same time, Sprint has to deal with the Nextel headache on its hands. In fact, Sprint failed to retain a whopping 192,000 contract customers in the quarter, primarily from its Nextel arm, as it prepares to shut down the latter's outdated network. And you still haven't heard the full story. Out of the $863 million that Sprint lost during the quarter, $543 million was related to the phase-out of Nextel alone.

Thankfully, the company managed to counter some of its losses as it added around 263,000 contract users under its own brand name, while rivals Verizon and AT&T added 501,000 and 187,000 contract customers, respectively, for the same period. But the factor that may make the greatest difference in Sprint's fortunes lies with Apple's ground-breaking product -- the iPhone, naturally.

Apple's "iPain for Sprint"
While the iPhone is known for being a huge burden on wireless carriers, which dole out massive subsidies for the phone to get customers to sign long-term service contracts, it has proved beneficial for Sprint in a number of ways.

While larger rivals such as AT&T and Verizon have seen a huge drop in iPhone activations, Sprint has moved a step ahead, with new activations representing a significant 44% of the 1.5 million iPhones it has sold in the first quarter. This, in turn, drove Sprint's average revenue per user up by $4.03 from the previous year. How good is that? Well, according to the company, it represents the highest year-over-year increase to ever occur in the history of the U.S. wireless industry.

But on the flip side, it's estimated that the company would have to part with a jaw-dropping $15.5 billion in iPhone subsidies over the next four years. But Sprint is hopeful the device will turn it a profit by 2014.

The Foolish bottom line
Let's face it. Sprint has been through five years of losses so far. And as it unloads cash to roll out 4G LTE, phases out some of Nextel's old networks, and continues to subsidize the wildly popular iPhone, the company looks set for a hard time ahead. For now, I'd prefer to watch the company from the sidelines -- and so can you by adding Sprint to your very own free watchlist.

Sprint faces a lot of challenges ahead, and many question its ability to compete in the cutthroat, capital-intensive business that is telecommunications. However, we've discovered three companies with incredible long-term potential -- so much that we consider them the "3 Stocks That Will Help You Retire Rich." Find out what they are by reading this limited-time, free report.

Keki Fatakia does not hold shares in any of the companies mentioned in this article. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 08, 2012, at 3:25 PM, FirstGratefulDad wrote:

    As I’ve said many times, give Sprint a chance to complete Hesse’s Vision and neither Verizon nor AT&T will be able to compete with Sprint’s network. Add to that a pending merger between Century Link and Sprint and you will have a behemoth that will crush the two of them!

  • Report this Comment On May 08, 2012, at 7:27 PM, conradsands wrote:

    Maybe consumers will finally notice that AT&T and Verizon = The Most Expensive Wireless Plans in America. We know where Verizon and AT&T (both in the top 5 for corporate lobbying) get all that money to run commercials 24x7, pay out huge “fat cat” executive bonuses and hire armies of lawyers and lobbyists to try to push the U.S. market into a wireless industry duopoly -- the American consumer. This is how AT&T and Verizon fashion themselves as brilliant … with their political use of money.

    According to the report “Corporate Taxpayers & Corporate Tax Dodgers 2008-10,” two of the 25 companies with the largest total tax subsidies were AT&T at #2 ($14.5 billion) and Verizon at #3 ($12.3 billion). Also, there were 30 corporations that paid less than nothing in aggregate federal income taxes over the same period. These 30 companies, whose pretax U.S. profits totaled $160 billion over the three years, included Verizon. The report states the laws that allow this were not enacted in a vacuum, but rather were adopted in response to relentless corporate lobbying, threats and campaign support.

  • Report this Comment On May 08, 2012, at 7:28 PM, conradsands wrote:

    The fact remains that Sprint is the only U.S. carrier to offer new and existing customers the iPhone experience with unlimited data plans starting at $79.99 per month. An investment writer recently summed it up best: “Sprint now offers the best value proposition for a new smartphone user. I got my first smartphone on Sprint because a new AT&T or Verizon data plan, without being grandfathered in with an earlier, lower price, is outrageous. My plan includes 450 afternoon mobile-to-landline minutes, unlimited other minutes, and unlimited texting and data for $79.99. Unlimited AT&T or Verizon plans would have approached $150, and to get a comparably-priced package, I'd have to settle on limited data or texting plans, which I'd have to constantly try to not blow through. Why get a smartphone if you can't have fun using it?”

    Sprint also tied for the number one spot among major wireless carriers for customer satisfaction, according to results from the 2011 American Customer Satisfaction Index.

  • Report this Comment On May 08, 2012, at 7:28 PM, conradsands wrote:

    AT&T remains the worst carrier in the United States, according to an annual customer satisfaction survey compiled by Consumer Reports. The mobile provider ranked dead last for the third year in a row.

    In other news, in a poll that asked 4,040 smartphone users how many dropped calls they had experienced in a three-month period, AT&T — carrier of Apple's iPhone and iPad mobile devices — came in dead last among the country's four largest carriers.

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