Sprint Posts $29.5 Billion Loss on Nextel Writedown

[hank424]

Feb. 28 (Bloomberg) -- Sprint Nextel Corp., the third- biggest U.S. wireless carrier, posted a $29.5 billion loss and scrapped its dividend after writing down the value of Nextel Communications Inc. and losing 683,000 customers.

Sprint sank 13 percent in New York trading and its credit- default swaps reached a record after reporting a fourth-quarter net loss of $10.36 a share. Sales fell 5.7 percent to $9.85 billion, missing analysts' estimates, and the carrier borrowed $2.5 billion under a credit line to get access to cash.

The loss is the fifth-largest among Standard & Poor's 500 Index companies since 1990. Sprint expects 1.2 million contract subscribers to leave this quarter, as many as it lost in all of 2007, amid complaints of dropped calls and poor service. Chief Executive Officer Dan Hesse, who took over in December, said business is worse than he expected and deteriorating.

``We need an articulated strategy of how he's going to turn around the business,'' said Michael Nelson, an analyst at Stanford Group Co. in New York who had predicted subscriber losses of 400,000 this quarter. He advises holding the shares. ``I don't expect it to be a pretty picture.''

Sprint, based in Overland Park, Kansas, fell $1.13 to $7.82 at 9:32 a.m. on the New York Stock Exchange, the biggest drop since Jan. 18. The shares had fallen 32 percent this year before today.

Price War

``We will have a difficult 2008 as we turn this ship around,'' Hesse, the 54-year-old who came in when Sprint ousted Gary Forsee, said on a conference call. ``This turnaround will not happen for many quarters.''

To win back customers, Hesse today announced an unlimited calling plan for $89.99 a month, including text-messaging and walkie-talkie calling in addition to regular phone calls. That steps up a price war that started last week, when AT&T Inc. and Verizon Wireless unveiled $99.99 offerings. Sprint also will sell a $99.99 version with Web access, television and music.

Sprint wrote down $29.7 billion of the $36 billion 2005 purchase of Nextel and related companies. The expenses reduce its goodwill, the premium paid in an acquisition for reputation, customers and other intangible assets.

Leaving out items such as the writedown, profit was 21 cents a share, topping the 18-cent average of estimates compiled by Bloomberg. A year ago, net income was $261 million, or 9 cents.

Sprint borrowed $2.5 billion under a revolving credit line, in part to mitigate financing risk related to $1.25 billion in bonds that mature in November, $400 million in commercial paper and $600 million of bonds that mature in May 2009. Sprint has about $500 million left under the revolving credit line.

Default Swaps

While it doesn't have an immediate need for the cash, Sprint said it made the move because of ``current market conditions.'' The carrier, which had paid a 2.5-cent quarterly dividend, had $22.1 billion in total debt at year-end.

Credit-default swaps tied to Sprint's bonds soared to the highest on record, a signal that debt-market investors are growing concerned about the company's ability to repay its debt. The contracts climbed 135 basis points to 509 basis points, according to London-based CMA Datavision.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A drop shows improvement in the perception of credit quality; an increase, the opposite.

Deutsche Telekom AG, Europe's biggest phone company, took 21.4 billion euros of writedowns in 2002 to cut the value of its U.S. mobile-phone unit and wireless licenses in the U.S., U.K., the Netherlands and France. Vivendi SA wrote down the value of entertainment, TV and music units by 18.4 billion euros for 2002.

Spending Drops

Hesse announced plans last month to eliminate 4,000 jobs and close a fifth of its retail sites. He replaced three top executives, including Chief Financial Officer Paul Saleh, and moved the headquarters to Kansas to save travel costs. Sprint had split its managers between Kansas and Virginia.

Sprint said first-quarter operating income, a measure of profit that leaves out expenses such as interest, will be $1.8 billion to $1.9 billion.

Subscribers on long-term contracts spent $58 a month on their bills last quarter, down from $60 a month last year, as prices fell for voice calls. Churn, the percentage of users who scrapped the service, remained unchanged at 2.3 percent.

AT&T, Verizon

San Antonio-based AT&T lured 1.2 million contract customers last quarter and Verizon Wireless, co-owned by Verizon Communications Inc. and Vodafone Group Plc, took 1.6 million.

AT&T won customers with handsets such as Cupertino, California-based Apple Inc.'s iPhone, which combines a mobile phone with an iPod music player. Sprint countered last fall with Taoyuan, Taiwan-based High Tech Computer Corp.'s Touch, which features a touch screen similar to the one on the iPhone.

Sprint may lose about 824,000 subscribers if reseller Qwest Communications International Inc. chooses a new mobile-phone partner. Denver-based Qwest, the home-phone provider in 14 U.S. states, has had talks with Verizon Wireless and Sprint about its wireless business after CEO Edward Mueller said his company can't sell the newest handsets under its current agreement.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net .

[Fire14]

Sprint posts big loss, stops dividend
New CEO says company in worse shape than he expected

Stung by defecting customers and falling sales, Sprint Nextel Corp. on Thursday posted a steep fourth-quarter loss and canceled its dividend.

Sprint has lost tends of thousands of key customers to rivals such as AT&T Inc. and Verizon Wireless, hurt by poor customer service and lackluster selection of handsets. The company recently hired a new chief executive, Dan Hesse, to fix its ailing wireless division.

Yet a blunt-speaking Hesse said Thursday that Sprint is in worse shape than he thought. The company's struggles won't end anytime soon, particularly with the U.S. economy turning south.
"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," Hess said in a conference call with analysts.
In the first quarter, Sprint predicted it would lose a whopping 1.2 million postpaid customers, with the potential for a similarly steep decline in the second quarter. That's the same number of postpaid customers Sprint lost in all of 2007.

Postpaid customers sign up for annual plans and pay at the end of the month. They are the industry's most valuable -- and most profitable.

Dismal results

In the fourth quarter, meanwhile, Sprint reported a net loss of $29.5 billion, or $10.36 a share, compared with a profit of $261 million, or 9 cents a share, a year earlier. Revenue fell 5.7% to $9.85 billion.

The entire loss stemmed from a noncash charge of $29.7 billion, as Sprint reduced the "goodwill" value of business.

Excluding nonrecurring items, the company would have earned 21 cents a share. Sprint was projected to earn 18 cents a share on revenue of $9.92 billion, according to the average estimate of analysts polled by FactSet.

In the fourth quarter, Sprint lost 683,000 postpaid customers, though a lower 108,000 overall. The percentage of customers who quit service, a key industry measure known as churn, remained at a stubbornly high 2.3%, while average monthly revenue per postpaid user fell 4% to $58 from a year earlier.

Hesse said he's reviewing the company's entire organization and business model and would chart a new strategy in the near future. His main goal now is to stanch the loss of customers, primarily by improved customer service.

To that end, Sprint on Thursday also unveiled a handful of simplified monthly pricing plans. In an industry first, Sprint will offer unlimited calls and text messaging as well as unlimited Internet access for $100 a month.

Rapid reorganization
While Sprint undergoes yet another reorganization, the company on Wednesday borrowed $2.5 billion from a revolving credit line in a move it said would provide more financial flexibility.
Sprint emphasized it's still on sound financial footing, saying "the company has no immediate need for additional liquidity."

In addition, Sprint canceled its dividend, which amounts to 10 cents a year, and ceased buybacks under a $6 billion stock authorization plan that ended in January. The company did not make any stock repurchases in 2007 fourth quarter or current first quarter.
Since taking over in December, Hesse has forced out dozens of senior executives, announced a 7% reduction in the workforce and unveiled plans to consolidate Sprint's headquarters in its historic home of Overland Park, Kansas.

The company's current headquarters are in Reston, Va., a location acquired via Sprint's 2005 acquisition of Nextel Communications. The integration of that merger has not gone smoothly and is viewed as one of the primary sources of Sprint's malaise.

Sprint still caters to nearly 53.8 million subscribers, but it only added 700,000 for the full year, all of whom are less profitable customers who chose prepaid plans or signed up through wholesalers.

By contrast, AT&T and Verizon added millions of customers to widen their lead. Market leader AT&T serves more than 70 million subscribers and Verizon caters to over 65 million.

Sprint posts big loss, calls off dividend payments - MarketWatch

[AnthroMatt]

About the only thing that surprises me is the frankness with which Hesse speaks.

The old leadership always sugarcoated everything...it's nice that someone is at the helm that isn't afraid to tell it like it is.

[bobolito]

That means either the guy is honest, or the problem is too big to hide it.

The only person I can think of that would try to hide problems despite their size is called George W. Bush.

If I was Mr. Hesse I would paralyze WiMax plans and 3G expansion temporarily while the company recovers. It means nothing being ahead of the competition with 3G and Wimax deployments when the rest of the company is in chaos. It's quite clear that being ahead in 3G doesn't mean much for the US consumer. Just look at T-Mobile, with no 3G yet at least commercially, and are doing better everyday.

[AnthroMatt]

That's not a bad idea. Being "behind the times" when it comes to data hasn't hurt T-Mobile too much.

[larry]

Originally Posted by bobolito

If I was Mr. Hesse I would paralyze WiMax plans and 3G expansion temporarily while the company recovers.

I had noticed about 2-3 months ago that they started putting up WIMax panels on some nextel towers around here but suddenly it appears they have stopped. I haven't seen any new additions in at least 3 weeks.

[Matt]

Originally Posted by AnthroMatt

That's not a bad idea. Being "behind the times" when it comes to data hasn't hurt T-Mobile too much.

True, no 3G network yet. But to an extremely high majority of customers just don't care. Do some people care? Sure, but message boards on the internet aren't a representative sample. Most people care about voice, text, and picture messaging, probably in that order. That's part of the reason T-Mobile hasn't felt the pain of not having a 3G network. Of course, eventually those services will catch on and TM needs to have them to remain competitive.

[larry]

Originally Posted by Matt

Sure, but message boards on the internet aren't a representative sample.

I agree and I think this also applies to other wireless related things as well.

[Charlyee]

Sprint Nextel Posts $29.5 Billion Loss


By THE ASSOCIATED PRESS
Published: February 28, 2008
Filed at 1:05 p.m. ET


KANSAS CITY, Mo. (AP) -- Sprint Nextel Corp. showed more signs Thursday that its recovery will be long and painful as it recorded a massive fourth-quarter loss, predicted continued customer weakness and pulled the plug on paying dividends.

The nation's third-largest wireless carrier also unveiled a $99.99 unlimited calling and data services plan that establishes a new target in a burgeoning wireless price war but warned that even that wasn't the ''silver bullet'' needed to cure its ills.


More:

[bobolito]

Originally Posted by AnthroMatt

That's not a bad idea. Being "behind the times" when it comes to data hasn't hurt T-Mobile too much.

Hasn't hurt AT&T either. In fact, AT&T has been adding numbers faster than Verizon as of late, yet their 3G network is well behind Sprint and Verizon.

[hf1khal]

Well this is bad and sort of good news. On the bad side, in my opnion Sprint's old management refused to see the writing on the wall and tried to ignore it and now with the new management may be the company will concentrate on becoming a premier company with customer service that will hopefully rival the best. If this is going to happen and hopfull the netwrok gets paid attention to in a more agressive manner, may be then the rivals will open their eyes and take all of Sprints actions into mind and we could very well end up in a pricing war as compared to each raising the price for things here and there. I thnk 2008 will be a hard year for Sprint but 2009 it is going to become a contender that all will notice big time.

[bobolito]

Sprint's network is pretty good, so they don't need to pay so much attention to it. With so many defecting customers, I can imagine their free capacity has only increased, which usually means a more reliable network for customers. Sprint needs to invest less in their network and make CS their #1 priority and I think this new management will be doing just that.

[hf1khal]

Originally Posted by bobolito

Sprint's network is pretty good, so they don't need to pay so much attention to it. With so many defecting customers, I can imagine their free capacity has only increased, which usually means a more reliable network for customers. Sprint needs to invest less in their network and make CS their #1 priority and I think this new management will be doing just that.

I agree. but for some reason the people that I know who are using Sprint have been leaving them because of a lot of netwrok issues (on the Sprint side) and that is why I said need to pay attention to the network. and on top they messed up royaly in the merging of the Nextel network (spectrum and business customers) and they are paying for it now. However, lately I have been seeing new ads that are Nextel Specific (which I have not seen for long time) and may be there are some new plans that took effect to keep the remaining clients happy untill a viable solution is found.

[off1c3r]

I wanted to get the Pearl 8130 and its only carried by Verizon and Sprint right now. (silver/pink for verizon and amesth/red for sprint). I love the amsyteh( yeah i know thats now how you spell it) so I waneted to stay with sprint but now Its like I don't know. I used sprint for a little while in my area and it was iffy. Its like, Sprint has more coverage, but its always weak all around. Nextel for me right now is perfect.. I mean not enough towers, but in 99% of where I have to be, i'm coverered. So it would be a downgrade for me to go to sprint, so that leaves verizon (even though I don't want the silver phone)...

I just hope things look better soon, cause I would like to stay with sprint but like they said.. no turn around is going to happen over night. Honestly, I guess what I am getting at, is that network issues for me are the big thing right now; not customer service.

[RJB]

TO bad noone has a clear cut answer for all this. Some say customer service others say network. Well I think both, there may be places the network is not good so work on that and also work on the CS as well. Make both of them work together and maybe things will turn around. As far as making nifty plans and what not big deal they can offer you your own island but if people experience things that can be prventable then they will hand the deed over. I do hope that Sprint gets back on its feet. I do not want to see a hostile take over by any means.

[larry]

Originally Posted by bobolito

Sprint's network is pretty good, so they don't need to pay so much attention to it. With so many defecting customers, I can imagine their free capacity has only increased, which usually means a more reliable network for customers. Sprint needs to invest less in their network and make CS their #1 priority and I think this new management will be doing just that.

I agree Sprint's CDMA network is not the problem. It's far superior today than what it was 6 or 7 years ago when they were leading the industry in subscriber growth for 14 consecutive quarters. Plus like you said with the lack of new customers they have increased capacity so that helps as well. I'm also convinced that the IDEN network is also greatly improved due to much more capacity with the loss of many IDEN customers. Plus Sprint's has invested heavily into new IDEN cell sites in the past 3 years.

[KyleAndMelissa22]

Wow, in perspective, Sprint lost more than the total value of Alltel Wireless

[off1c3r]

Originally Posted by KyleAndMelissa22

Wow, in perspective, Sprint lost more than the total value of Alltel Wireless

Lol sounds about right. To add, yeah nextel service is really much better... I saw their listing for new cell towers and one was near the highway I travel and I noticed that I no longer drop my calls there.. always connected the whole drive. Good for emergencies.