February 28, 2008

2 Min Read
Nextel Buy Bites Sprint With $29.5B Loss

By Tara Seals

Sprint Nextel Corp. may have reported a massive net $29.5 billion loss for the fourth quarter thanks to the Nextel writedown, but that might not be as deep as the rabbit hole goes.

The ailing carrier, which also scrapped its dividend Thursday, predicted that it will lose an additional 1.2 million postpaid customers in the first quarter, with the second quarter bringing more of the same. Adding even more insult to injury, new CEO Dan Hesse said the carrier is in worse shape than he thought, with deteriorating conditions ahead.

“I now have had two full months at the helm, and to be perfectly frank, the issues we face are more difficult than what I had expected to find,” Hesse said in a conference call.

Chief among the issues are dropped calls, customer service complaints and difficulty in integrating the $36 billion acquisition of Nextel all giving wings to Hesses prediction on the conference call that we will have a difficult 2008 as we turn this ship around.  He added, This turnaround will not happen for many quarters.”

Hesse said he will soon unveil a strategy to right the ship, building on already-announced initiatives to cut its workforce by 7 percent and consolidate headquarters in Overland Park, Kan. He did announce that Sprint will join the wireless price war that began last week, hoping to win back customers with an unlimited calling plan for $89.99 a month, including text messaging and push-to-talk. Analysts hailed the move as prudent.

Hesse also said the company will launch QChat, a new version of push to talk, in the second quarter, with the goal of expanding to 20 markets by the end of the year.

Hesse did leave the door open for further measures of optimism, saying that Sprint is hanging onto sound financials despite a rocky 2007, with 53.8 million subscribers still on board. Taking the writedown out of the picture, Sprint posted a 21 cents-per-share profit.

Sprints WiMAX venture, expensive though it will be, may also shore up the carrier in the long run, as it will be first to market with 4G wireless broadband services, widely seen as the key to sparking widespread uptake of lucrative data services.

Last years fourth quarter results had Sprint posting a profit of $261 million. Now, the carrier has posted staggering losses two quarters in a row, and key metrics are off: Sprint is reporting a high churn rate at 2.3 percent, and ARPU is down 4 percent (falling to $58). lt lost tens of thousands of customers in 2007 (and 683,000 in the fourth quarter alone). And, the No. 3 cellco on Wednesday tapped its line of credit for $2.5 billion for financial flexibility.

Sprints stock price tumbled to its lowest level since 2002 on the news.

Sprint Nextel Corp. www.sprint.com

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