Sprint Posts $29.5 Billion Loss on Nextel Writedown

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

 

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.

 

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.

 

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

 

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.

 

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.

 

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

 

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:

 

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.

 

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.

 

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.

 

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.

 

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.

 

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.

 

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

 

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.

 

Sprint Seen Limping Through '08 on Weak Subscriber Growth

For a company that emphasizes speed in its marketing, turning around lackluster subscriber growth is unlikely to happen quickly for Sprint Nextel.

Chief Executive Dan Hesse, acknowledging that things were worse than even he expected, said during a Thursday conference call that customer defections would intensify in the first half of the year. Others say Sprint's problems - the complications of running two separate networks, poor customer service and a muddled marketing message - coupled with a weak U.S. economy, maturing industry and formidable rivals may mean things don't turn around until 2009.

"It's going to take more than a year," said Ping Zhao, an analyst for CreditSights. "The subscriber growth is a problem that's not easily fixable."

The Overland Park, Kan., company's decision to again tap its revolving credit facility for $2.5 billion also suggests it expects more problems.

On Thursday, Sprint said it sees losing another 1.2 million post-paid subscribers - or customers who sign long-term contracts and pay monthly bills - in the first quarter, equal to the total loss of contract customers sustained last year. Hesse warned analysts during the conference call the trend would likely continue into the second quarter.

Hesse is focused on improving the customer experience, which he believes will be the key to turning around the exodus of customers.

But the company will be hard-pressed to do so while it maintains two separate networks; Sprint uses a standard called CDMA while its Nextel business uses iDEN and are not compatible, with a few exceptions.

"As long as they keep the networks together, the cost structure will be a problem," Zhao said. "The structure, as is, is very difficult to fix."

In essence, Sprint is operating two smaller networks rather than one large one. Those two networks compete against much larger rivals in AT&T and Verizon Wireless, jointly owned by Verizon Communications and Vodafone Group.

While Sprint can merge certain expenses such as billing, sales and back-office operations, certain redundant expenses always will exist, putting it at a competitive disadvantage to AT&T and Verizon Wireless.

Growth in the wireless industry, however, is reaching maturity, meaning there are fewer customers to grab. Already large carriers are going after niche audiences such as children and senior citizens for growth. Even if Sprint can improve its customer service and clean up its reputation, there may not be that many subscribers left to grab.

At the same time, the broader economy is weakening as consumers hold off spending. Sprint isn't the cheapest game in town - Deutsche Telekom's T-Mobile USA offers more competitively priced plans.

Acknowledging the difficulties, Hesse said he was focusing on reducing the rate of subscriber cancellations. He wants to preserve the core of Sprint's customer base of 54 million by improving and simplifying the customer experience.

"I feel a tremendous amount of pressure to improve performance as rapidly as possible," Hesse told Dow Jones Newswires after the conference call.

Still, it would take a while before things turned around, he said.

One fund manager, who follows the telecom industry and used to own a stake in Nextel, called Sprint a "value trap," saying it looked really cheap on a historical basis, but that it was poised to fall further. Sprint shares currently trade at 12.7 times 2008 earnings estimates, below its five-year average of 17.8 times.

"It seems to me people keep hoping or wishing that things will get better," the manager said. "It's like trying to turn an ocean liner."

Sprint shares fell 9.6% Thursday to close at $8.09. Earlier, they fell 13% to $7.75, their lowest level since October 2002. In recent late trading shares are down to $8.07.

The weaker expectations led Fitch to downgrade Sprint's credit rating to junk status, while Standard & Poor's put the company on CreditWatch with negative implications.

Likely weighing on sentiment was Sprint's decision to tap into its credit facility, which is often seen as a sign of desperation.

The move was done to increase financial flexibility and reduce the risk of needing to borrow money at a later time and steeper rates, Hesse said, noting the uncertainty in the credit markets.

But the company also stopped paying its dividend and didn't buy back and shares in the quarter, suggesting pessimistic expectations for the future.

"Sprint is taking steps on the financial flexibility front suggesting lean times are coming," Banc of America Securities analyst David Barden said in a note.

Some, however, are giving Hesse time and the benefit of the doubt.

"It's only a start," said Jonathan Atkin, an analyst at RBC Capital Markets. "They're not rushing into things."

Despite its problems, Sprint still owns a valuable amount of spectrum. And while shrinking, the customer base is still a large one, only behind AT&T and Verizon Wireless.

The company has its hopes pinned on Q Chat, a walkie-talkie-type service that mimics the push-to-talk function on Nextel phones. It will aggressively push the feature and other data services as voice revenue matures.

But there's only so much slack Wall Street is willing to give. Hesse will need to show a clearer strategy in the next quarter or two, as well as show some progress by 2009, Atkin said.

Sprint Seen Limping Through '08 on Weak Subscriber Growth

 

Oh the misinformation I keep seeing on new releases.

Sprint's network covers about 85+% of the US population and is certainly not a "smaller" network. Nextel's network actually covers more of a combination of both territory and population (when compared natively) than any other carrier. Both networks are large and can compete just fine with the other carriers although the IDEN system is outdated and can sometimes have problems.

 

I think what they were trying to say Larry is, that instead of having 1 CDMA network they have 2 which is a problem for them vs say AT&T or Verizon that is 1 complete network for all their customers.

 

Yes Sprint would certainly be better off having only one technology. The IDEN system has been the main source of their downfall since the merger.

 

here is an interesting thing that was on CNET's crave site:
Rumor: Sprint will spin off Nextel | Crave : The gadget blog

Mar 6 2008
Rumor: Sprint will spin off Nextel
Kent German 1 comment

Together no more?
Rumors are swirling today over the future of Sprint.

First off, Seeking Alpha is reporting that Sprint has hired Morgan Stanley for a possible spin-off of its Nextel brand. Sprint's ongoing troubles have been widely reported over the last few months and many analysts have named the 2006 merger between Sprint and Nextel as a key cause of the carrier's ongoing troubles. With that in mind, a spin-off of Nextel may be surprising, but it wouldn't be so shocking.

But that's not the only Sprint dish going around today. The Kansas City Star said that Merrill Lynch analysts are predicting that Deutsche Telekom, owner of T-Mobile USA, is considering buying Sprint. The joining of a CDMA and a GSM carrier seems a bit unlikely, but after Sprint scooped up Nextel I can believe just about anything. Yet what would seem more probable is a Verizon Wireless acquisition of Sprint. But as the Wall Street Journal points out, Verizon should just concentrate on sucking away Sprint's customers. Verizon already decided in 2004 not to buy Sprint so the Journal can't find a reason why it should try again.

In any case, Sprint needs to do something to revive its business. But what exactly should it be? What do you think? Do any of the above options sound like a good idea?

Posted in: Phones

 

That would be interesting but It doesn't seem like a good move. Nextel didn't have the capital to push iden2 or to even push more towers for the iden network as it is. If anything sprint invested a lot into nextel and failed but nextel got the better gig. IF sprint was to drop nextel into its own entity, that would mean it would have its own budget system within itself. I don't think the iden network will expand on its own and since its already in its decline or purchase (by whoever decides to purchase it, us govt etc) ... that would mean nextel would be marketed as a CDMA carrier and lease sprint lines? I don't know it seems to complicated to me. For nextel to run on its own it would need a huge multimillion dollar investment imo.

 

I am not so sure about that. I have not seen Sprint concentrate on IDEN itself but actualy think that they neglegted it and concentrated on the PCS side more and that is one major cause of the bleeding that is happening 9which is mostly from the Nextel side). I am sure Larry can elaborate a lot more than me on this.

 

Believe it or not Sprint did in fact pour heavily into building new IDEN sites. This of course might be dependent on the market. But yes they did concentrate more on the CDMA side of things because this is (or was going to be) their future. Plus it was much easier to add CDMA to an existing IDEN site than the other way around. The IDEN sites had enclosed equipment sheds and typically had more land leased for the site making it easy to drop in CDMA. The CDMA sites could not accomodate IDEN equipment without major alterations and new leasing. The only thing really wrong with the IDEN system is that it's very capacity hungry and adding a few hundred thousand new customers can really play havoc on it. Now that the IDEN side has lost so many customers capacity should no longer be a problem. IDEN coverage has always been fine.

 

I completely vouch for that and back that up. My iden service is better than ever right now. It hasn't been this good since maybe 1999 when I first got nextel! .. (or maybe 2000 I forgot when I left verizon lol)

 

LOL! I didn't know there was such status. That's says a lot about Sprint's current financial status.

 

This is what they call Junk Bond. This is a desination to all that fall below the investment grade status. Sprint should be no stranger to this as they were like that since inception and only got out of the staus a few years back. The biggest factor for them with this is the higher cost of borrowing based on the risk factor.