Sprint Nextel (NYSE: S) wants investors to think that the "improvement" found in its latest earnings report is something for investors to take comfort in. But considering the big picture, the company's spin brings to mind a last-place basketball team bragging about how it lost its most recent game by 20 points instead of its usual 35.

While revenues and earnings were roughly in line with Wall Street forecasts, Sprint reported that it lost "only" 578,000 monthly (i.e., postpaid) subscribers in the first quarter, less than the 623,500 expected by analysts, and well below the 1.25 million lost a year ago. Moreover, after factoring in prepaid and wholesale users, Sprint's net customer loss only totaled 75,000.

That all sounds encouraging, until you remember what the competition was doing at the same time. Even while dealing with the effects of a saturated U.S. wireless market, Verizon (NYSE: VZ) and AT&T (NYSE: T) reported net gains of 423,000 and 512,000 retail monthly subscribers, respectively. Their total net customer gains, meanwhile, came in at 1.5 million and 1.9 million.

It's also worth looking at the cumulative impact of Sprint's never-ending subscriber losses. Whereas the company had 41.6 million retail monthly subscribers less than three years ago, it now has less than 33.4 million, with further losses likely in store. Total subscribers are also down, to 48 million from about 54 million. Over the same time, AT&T's subscriber base has grown from less than 64 million to 87 million.

Sprint's cash-flow situation also shows how far the company has fallen from grace. Operating cash flow, which hit $2.9 billion during the third quarter of 2006, fell to just $1.1 billion. And in spite of Sprint's drastic attempts to cut capital spending, which include tapping Clearwire (Nasdaq: CLWR) to build and run the company's 4G network, free cash flow came in at just $506 million, down from $796 million a year ago.

Not encouraging numbers for a company that has more than $16.6 billion in net debt, with much of its debt load due over the next five years.

Sprint's clearly hoping that its lead in offering 4G services, highlighted by the rollout of HTC's EVO smartphone this summer, will give the company a leg up. But between a limited selection of handsets and the fast download speeds already provided by 3G services, I'm skeptical about it providing a huge boost. And looking at things long-term, Sprint's use of WiMAX as its 4G technology instead of the more popular LTE will make it even harder for the company to offer a compelling lineup of phones relative to competitors, and probably make Sprint a less appealing acquisition target for either a domestic rival, or a major foreign carrier such as Telefonica (NYSE: TEF) or America Movil (NYSE: AMX).

Unless its 4G launch blows away the market's expectations, it's hard to see a way for Sprint to untangle itself from its mess. Its limited resources guarantee that it has no chance of matching Verizon's network coverage, and its smaller size guarantees that marquee smartphones such as Apple's iPhone and Motorola's (NYSE: MOT) DROID will usually end up with Verizon or AT&T. Maybe postpaid subscriber losses can be further reduced, but don't expect them to go away.

And as postpaid subscribers keep declining, cash flows are likely to follow. Quite possibly enough even for Sprint's depressed valuation to become unsustainable.

Fool contributor Eric Jhonsa has no position in any of the companies mentioned. Sprint Nextel is a Motley Fool Inside Value pick, Apple is a Stock Advisor selection, and America Movil is a Global Gains recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.