NEW YORK -(Dow Jones)- Sprint Nextel is slipping further behind the top two U.S. wireless carriers in the fourth quarter.
The Reston, Va., wireless service provider lost 306,000 post-paid subscribers, or contract customers seen in the industry as a source of high-margin revenue. It's a painful illustration of the exodus seen in its Nextel line of customers, but is also a result of the company's plan to focus on higher quality customers by shedding ones that hold more credit risk.
William Power, an analyst for Robert W. Baird & Co., estimated Sprint lost 750,000 subscribers from the Nextel side. "It reconfirms that they've been facing significant pressure in that area," he said.
Sprint did manage to post total subscriber growth, helped by a healthy contribution of 830,000 wholesale subscribers. The company has been among the most aggressive in forming partnerships with wireless resellers and counts Virgin Mobile USA as one of its successes.
Sprint ended the year with 53.1 million customers. In comparison, leader Cingular Wireless, owned by AT&T, has 61 million customers, and Verizon Wireless has 59.1 million customers.
Both carriers showed far more impressive subscriber growth in the last quarter as they have benefitted from Sprint's struggles. In addition, No. 4 Deutsche Telekom's T-Mobile USA and rural carrier Alltel also took market share. Conversely, Motorola, which makes Nextel iDEN handsets, posted disappointing year-end results.
Sprint Nextel reported fourth-quarter net income of $261 million, or 9 cents a share, up from $197 million, or 7 cents a share, in the year-ago period.
On an adjusted basis, Sprint said fourth-quarter profit climbed to 29 cents a share from 23 cents a share. On average, analysts polled by Thomson Financial expected earnings of 28 cents a share on revenue of $10.39 billion.
Revenue rose to $10.44 billion from $9.79 billion a year earlier, when the company still had its fixed-line assets. The business was spun off into Embarq Corp. (EQ) in May.
Average revenue per user was a little more than $60, a 1% decline over the third quarter and a roughly 5% decline over a year ago, suggesting that the company's focus on alternative sources of revenue such as data services haven't been enough to offset declining voice revenue. Still, data revenue rose 66% from the year before on demand for text messaging and increased laptop aircard usage.
The rate of turnover for post-paid customers increased to 2.3% from 2.1% a year earlier as a result of its shrinking iDEN base. On the pre-paid side, the turnover rate was 6.5%, a dramatic increase from the 4.8% rate from a year ago.
Looking ahead, industry observers will be eyeing future subscriber growth trends. Sprint is releasing dual mode phones - handsets that work on both Sprint and Nextel wireless standards - with hopes that they will help retain Nextel customers. How they will fare is among the biggest uncertainties for the company, Power said.
The analyst has no conflicts of interest to report.
Sprint backed its prior forecast for 2007 revenue of $41 billion to $42 billion and adjusted operating income before depreciation and amortization of $11 billion to $11.5 billion.
To reflect accelerated fourth-quarter wireless network deployments, Sprint is revising its 2007 capital-expenditures target to about $8 billion from its previous forecast of $8.5 billion.
Shares of Sprint rose 30 cents in recent premarket activity to $18.75.
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; email@example.com
(END) Dow Jones Newswires"
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