With Decision on T-Mobile Deal Pending, Sprint's Financial Challenges Continue
Sprint said it continues to lose key postpaid phone customers at a growing rate. The company had a net loss of $120 million in the third quarter. Postpaid phone churn was 2.06 percent, much higher than other national carriers. Sprint was the first of the big carriers to report Monday. U.S. District Judge Victor Marrero is considering a lawsuit brought by state attorneys general aimed at blocking the T-Mobile deal (see 2001150077). One of the arguments the companies have made is that Sprint needs to combine with T-Mobile to stay financially viable. Sprint closed at $4.63, down 4.14 percent for the day, its lowest level in four years.
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Sprint executives didn’t hold a call with analysts. "As we await a decision in the state attorneys general lawsuit, I continue to believe the merger with T-Mobile is the best way to deliver the benefits of competition to American consumers,” said Sprint CEO Michel Combes in a news release.
Sprint had wireless service revenue of $5.2 billion, but that was “negatively impacted by the continued amortization of prepaid contract balances as a result of adopting the new revenue standard last year, while the year-ago period included Lifeline revenue related to federal and state government subsidies claimed as a result of an inadvertent coding error,” the company said. Sprint reported a net loss of 115,000 postpaid phone customers, a steeper loss rate than previous quarters. It lost 174,000 prepaid connections.
Sprint reported progress on its network, with its 2.5 GHz spectrum “substantially deployed on its existing macro sites.” The carrier has deployed about 37,000 outdoor small cells and thousands of “massive” multiple-input and multiple-output sites on-air across the country. The quarter ended Dec. 31.
New Street’s Blair Levin told investors a number of filings are likely soon in the Tunney Act review of the DOJ settlement with the companies, before U.S. District Court Judge Timothy Kelly. “As noted earlier, we now expect the court decision in the proceeding to be around the same time or even after the court acts in the principal antitrust claim,” Levin wrote: “We give low odds to the court overturning the consent decree, but we have heard concerns, including from the conservative side of the antitrust bar, about a DOJ process that stretches the institutional role of the DOJ.”
Little is left to say on Sprint, said MoffettNathanson’s Craig Moffett in a note. “We have no idea what Judge Marrero will decide in the State … case,” Moffett said. “We’re still at 50/50, with the merits in the case at hand favoring the states but with full acknowledgement that the ‘merits in the case at hand’ aren’t the only issue.”
“Sprint’s rising churn rates, weakening financial performance and high debt load highlight the necessity of the proposed T-Mobile merger,” said Steve Vachon, analyst at Technology Business Research: “Subpar network quality remains at the root of Sprint’s issues as postpaid phone subscriber losses continue to escalate, despite the operator’s aggressive pricing and elevated network capex spending since 2018.”
“Subscribers are not stabilizing; the pace of decline is still accelerating; it is just accelerating at a slightly slower pace than we and consensus expected,” New Street’s Jonathan Chaplin told investors: “We continue to think the company’s prospects are grim, absent a deal” with T-Mobile.