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2nd UPDATE: Sprint 3Q Net Down 77%; Sees More Subscriber Woes

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(Updates throughout starting in the sixth paragraph with additional comment from executive and analysts.)

­NEW YORK -(Dow Jones)- Sprint Nextel's third-quarter net income fell 77% as customers continue to flee the struggling carrier with few signs that things will get better.

The Reston, Va., company has struggled over the past year with keeping customers on the Nextel line and shed lower-credit-quality subscribers, which led to the resignation of Chairman and Chief Executive Gary Forsee.

Chief Financial Officer Paul Saleh, taking over on an interim basis, told analysts on a Thursday conference call that Sprint is focusing on preserving its existing base while simplifying its business.

"Our focus is on retention," Saleh said. "That doesn't mean we're not interested in growth." On the continued declines, he said "We're not tolerating anything. We're as disappointed as you are."

Excluding acquisitions, Sprint lost 337,000 post-paid subscribers, or customers who sign annual contracts and pay monthly bills. Total subscribers fell 60,000 from the second quarter to 54 million. By comparison, larger rivals AT&T and Verizon Wireless added 2 million and 1.6 million net subscribers, respectively. Sprint expects subscriber losses to continue into the fourth quarter.

Saleh, in an interview with Dow Jones Newswires, downplayed the impact of competition. "A lot of it has to do about execution on our part," he said. "It's less about what someone else is doing, it's about what we should be doing."

He said the impact from Apple and AT&T's iPhone has been minimal, aside from brief upticks when it debuted in late June and during a price cut in September.

Shares of Sprint recently traded at $16.68, down 42 cents, or 2.5%. Earlier, shares set a 52-week low of $16.27.

Saleh shed little light on the search for a new chief executive, saying only the board was active. "We're working to fill the role as expeditiously as possible," he said. "We're not standing still."

Indeed, Saleh touted the improvement in network quality on Nextel and said Sprint plans to "reinvigorate" the Nextel franchise starting with the current quarter.

The nation's third-largest wireless carrier behind AT&T and Verizon Wireless reported net income of $64 million, or 2 cents a share, compared with $279 million, or 9 cents a share, a year earlier.

Excluding items, primarily merger and severance costs and amortization, Sprint said earnings per share fell to 23 cents from 32 cents.

Revenue dropped 4.2% to $10 billion.

The mean estimate of analysts surveyed by Thomson Financial were for earnings of 22 cents a share on revenue of $10.24 billion.

According to Bank of America analyst David Barden, in a note, Sprint appears to be playing defense, and appears cautious going into the fourth quarter.

Forsee had been promising better days for Sprint's wireless business and, in the second quarter, partly delivered. But Sprint warned at the time of Forsee's departure that it expected a third-quarter net loss of about 337,000 post-paid subscribers from a year earlier. The company also lowered its 2007 top- and bottom-line forecasts.

Sprint has been losing high-value subscribers for more than a year, and that ultimately helped push out Forsee last month. He resigned days after The Wall Street Journal reported that Sprint's board had a search under way for a successor.

Many of Sprint's troubles stem from its reliance on customers with poor credit, the cellphone industry's version of the subprime-mortgage market. The same kinds of people who now are having trouble paying their mortgages on time also are having trouble paying cellphone bills.

Average revenue per post-paid user fell 3% from a year earlier to slightly more than $59. The rate of turnover for post-paid customers was 2.3%, versus 2.4% a year earlier, while prepaid churn fell to 6.2%.
­Sprint plans to add customer care staff, simplify pricing and promotion, and expand its distribution in an effort to improve its business, Saleh said. He also touted the strength of the data revenue contribution and said that its customer base tends to spend more on data.

The company's long-distance division saw a 1% dip in revenue to $1.61 billion as a decline in voice customers offset gains for Internet telephone services.

Sprint also said it added 124,000 subscribers to its Boost Unlimited program, a prepaid service that provides unlimited calling and texting for a flat fee. The company said it plans to expand the program from the current test markets in Texas and California to a total of 12 states and allow unlimited Internet surfing and text messages.

"We're already encouraged by the trends we're seeing in this business," Saleh said.

However, the unlimited calling plans appear to be eroding the Boost Mobile value, according to Barden's analysis.

Sprint still sees 2007 revenue falling slightly below $41 billion. It also backed off its 2008 operating income forecast, saying it would give a new projection early next year.

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

(Kevin Kingsbury contributed to this story.)

(END) Dow Jones Newswires

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