More Subscribers, Less Income Mark Sprint’s Second Quarter

Higher costs drove Sprint Nextel Q2 net income down 34 percent despite revenue growth. Operating income was $569 million in the second quarter, down from $863 million in Q2 2006. Wireless growth and wireline stability drove revenue to $10.2 billion, up 2 percent. But merger and integration costs swelled capital expenditures to $1.67 billion, up 23 percent from the previous year.

More data revenue, less churn and higher net adds helped Sprint boost wireless revenue 3 percent year-over- year to $8.8 billion. Data revenue grew 40 percent from last year. Sprint added 400,000 wireless subscribers the second quarter, raising its base to 54 million, up 5 percent. But operating income was $494 million, down 28 percent from last year.

IP services growth drove Sprint’s Q2 wireline business. Wireline saw $1.6 billion in revenue, flat with last year; income was $126 million, down 24 percent. But the company saw 37 percent growth in IP services revenue, driven by dedicated IP services for enterprise customers and strong cable VoIP growth. IP services brought a quarter of Sprint’s total wireline revenue.

Sprint reiterated its 2007 targets for revenue, income and spending. The company expects $41-42 billion revenue, $11-11.5 billion operating income and $7.2 billion capital spending. “Our focus remains on closing churn and customer care gaps, building on our recently-launched Sprint Ahead marketing campaign, and extending the EVDO footprint to meet strong demand for wireless data services,” said Sprint CEO Gary Forsee. “We will also continue to have significant resources assigned to the consolidation of many of our major systems, migrating customers from iDEN to CDMA utilizing PowerSource devices, preparing for the deployment of high-performance push-to-talk on our CDMA network, and cementing our plans for WiMAX deployment.”

Sprint wants Broadcom and Qualcomm to “reach a resolution” in those companies’ patent dispute, Forsee said. Monday, the President declined to veto an International Trade Commission ban on import of Qualcomm chips said to infringe on Broadcom patents (CD Aug 7 p3). Sprint is importing and testing handsets with Qualcomm’s technological workaround, he said. The workaround has had “no impact on customer experience,” he added.

Sprint and Clearwire are progressing toward a core operating agreement, hoping to finish it by mid-September, Forsee said. The companies then will file with the Securities Exchange Commission and Justice Department, he said.

Sprint is entering phase two of its 800 MHz rebanding, the “most complicated part,” Forsee said. “We're… working cooperatively with public safety incumbents, the transition administrator, [and] the FCC to schedule and coordinate phase two 800 MHz retunes, minimize disruption, maintain public service interoperability and mutual aid relationships, and maintain the highest level of network iDEN performance,” he said. Phase one went well, despite Q2 network disruption on the iDEN network, he said. “The planning and some of the direction the FCC has given, particularly around the cost allocation part of that, will allow us to continue full speed ahead.”

Sprint’s exercise of a put option on its cable joint venture partners for Sprint AWS spectrum acquired in last year’s auction by SpectrumCo “has no impact on our [joint venture] and was fully anticipated by our partners,” Forsee said. Sprint was less certain about its 2.5 GHz position and the “final disposition of the AWS auctions” when it participated in that auction, he said. Sprint is behind schedule on its joint venture with Comcast, Time Warner, Cox and Bright House, Forsee said. The joint venture has launched in 20 markets and is expected to reach 40 by year end. “It took us longer because we spent time on back office to get that right before we took it to the marketplace,” he said. “There’s still some system work to be done to speed up that activation, but I think Sprint and the four cable companies… are committed to make this work.”

A four-market trial of Sprint MVNO Boost Mobile is going well, Forsee said. Sprint has seen more use than expected among early adopters and minimal cannibalization of Sprint’s other offerings, he said.

The iPhone’s arrival caused a “couple weeks blip” in Sprint Q2 porting rates, Forsee said. The company still is seeing a moderate rise in port-out activity, he said. - - Adam Bender