Sprint: Subscriber Growth Hurt By Competition, Seasonality"

NEW YORK -(Dow Jones)- Sprint Corp. (FON) saw its second-quarter subscriber growth fall from the first quarter as a result of seasonality and aggressive marketing promotions from its competitors, according to the company's president.

Still, Len Lauer, who is also the chief operating officer, said he was "pleased with the momentum we saw in the quarter."

Sprint posted a turnover rate of 2.2%, a four-year low for the company. Its average revenue per user remained flat at $62, attributed to a stronger contribution from wireless data revenue, Lauer said during a conference call Wednesday to discuss its second-quarter results.

The Overland Park, Kan., phone company, which is in the process of merging with Nextel Communications Inc. (NXTL), said net income rose to $600 million, or 40 cents a share, from $236 million, or 16 cents a share, in the year-ago quarter.

Quarterly revenue rose 4% to $7.11 billion from $6.87 billion last year.

Sprint Chief Financial Officer Bob Dellinger said he sees 2005 revenue growth in the low single digits, or roughly 3% to 4%. The company also projected adjusted earnings before interest, tax, depreciation and amortization of $8.7 billion to $8.9 billion.

Chairman and Chief Executive Gary Forsee said the combined company will pay a dividend, but declined to specify the amount, saying it would be determined following the merger.

Sprint's wireless business again increased its contribution to total revenue, Dellinger said. It contributed to 56% of revenue in the second quarter, up from 52% a year ago.

The growth in wireless continues to offset the declines in the wireline business, Dellinger. That's the trend seen with most carriers. In addition to wireless voice, data services has become increasingly important to creating profitable growth, he added.

Sprint is pursuing other avenues of growth through partnerships to reach areas it hasn't been previously been strong in, he said. As an example, he cited its continuing partnership with the cable providers for their Internet-based phone service.

The company has also increased productivity by 15% as measured by revenue per employee. Sprint has made solid progress on expense initiatives, he said.

On the wireless side, Operating Chief Lauer acknowledged net subscriber additions fell to 588,000 from 897,000 a year ago. He noted the second quarter is typically weaker for its prepaid service Virgin Mobile.

Sprint's "Fair and Flexible" continues to be its flagship product, and has been successful in attracting and keeping subscribers, Lauer said.

The flat average revenue per user has bucked the trend of declines from the other wireless carriers. Lauer said add-on products and data service revenues helped offset decreased overage charges.

Sprint is also aggressively deploying its high-speed wireless network, EV-DO, and consumers will be able to use the service by the end of the year in several major markets, Lauer said.

The long-distance business continues to have challenges as consumers migrate to a wireless service. As a result, revenue in the segment fell, Lauer said, adding there have been aggressive cost cuts in the area.

Sprint continues to be selective in capital investments for long distance, choosing to focus on growth areas such as Internet phone services.

The local service business, which will be spun off after the merger with Nextel, saw revenue fall from a year ago, as the rate of access line deactivations is greater than activations, said Mike Fuller, president of Sprint's local business.

Adjusted operating income, however, rose due to lower costs and lower-than-expected post-retirement benefit expenses.

The strategy of bundling services, a catalyst for other phone companies, has helped drive growth in DSL and long-distance services, Fuller said.

Sprint will begin regulatory filing for the spin-off shortly after the merger.

CEO Forsee declined to comment on the prospect of acquiring or renegotiating deals with Sprint's affiliates. The carrier earlier this month agreed to acquire US Unwired Inc. (UNWR).

"It will be an affiliate-by-affiliate discussion," he said.

Forsee said it was premature to comment on how Sprint would integrate US Unwired. He did note there was some cost reduction opportunity from the back office.

"To go beyond that is inappropriate," he said.

The US Unwired acquisition settled litigation between the two companies. After US Unwired, several affiliates sued the company in an effort to secure their exclusive agreements.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 27th July 2005