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UPDATE: Sprint 1Q Loss Widens on Subscriber Losses

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(Updates information on Clearwire and IPCS lawsuit in the 18th paragraph and analyst comments in the 10th and 14th paragraphs.)

NEW YORK -(Dow Jones)- Sprint Nextel reported a wider first-quarter loss as its most valuable subscribers - those who sign long-term contracts - continue to defect, but Chief Executive Dan Hesse indicated things were slowly turning around.

The turnover rate for so-called post-paid customers will be slightly better than in the second quarter, Hesse told analysts during a conference call on Monday.

"Improving the customer experience and being more selective about the customers we acquire should improve churn, but we expect that post-paid subscriber losses will improve only marginally from first-quarter levels," Hesse said.

Sprint, the No. 3 U.S. player by subscribers, has been hemorrhaging long-term subscribers in a bare-knuckled battle with rivals AT&T and Verizon Wireless. It reported a net loss of $505 million, or 18 cents a share, for the quarter, compared with a year-earlier net loss of $211 million, or 7 cents a share.

The latest results included $317 million of pretax merger and integration-related charges. In the fourth quarter, Sprint posted a $29.5 billion loss - one of the largest in corporate history - largely due to a massive write-down of the value of Nextel, which has suffered from poor network quality and customer service.

Excluding items, earnings fell to 4 cents a share from 18 cents. Revenue fell 8% to $9.33 billion due to wireless weakness.

Analysts polled by Thomson Reuters had expected earnings, excluding items, of 2 cents a share on revenue of $9.41 billion.

In recent trading, Sprint shares rose 30 cents, or 3.2%, to $9.68.

Sprint has been losing badly to AT&T and Verizon Wireless as the telecommunications giants try to steal one another's lucrative, long-term subscribers - one way they can grow with 80% of U.S. consumers already owning a cellphone.

"Sprint's first-quarter results and rest-of-year guidance offer no clear sign of sustainable improvement," said Craig Moffett, an analyst at Sanford C. Bernstein & Co. "That leaves us more than a little cautious about the sustainability of Sprint's strong recent run."

While there are signs of improvement, Sprint will continue to struggle. Hesse said he expects average revenue per user to erode in the second quarter. Operating income before depreciation and amortization will face "downward pressure" in the period before stabilizing by the end of the year.

Sprint's post-paid subscribership tumbled 1.1 million during the quarter, pushing total subscribership down 1.5% from a year earlier to 52.8 million. Hesse in February warned that Sprint would lose an estimated 1.2 million long-term contract subscribers in the first quarter and warned the losses would continue in the second quarter.

Average revenue per post-paid user fell 6% while post-paid churn, or customer turnover, rose to 2.45% from 2.3%. The deterioration is worrisome.

"Not only is Sprint losing customers...they are losing their best customers," Moffett said.

Sprint also lost 543,000 traditional prepaid users during the quarter, partially offset by gains of 343,000 at Boost Unlimited and 183,000 wholesale and affiliate subscribers.

Hesse, who took over as CEO in December after former chief Gary Forsee was forced out, said in February that it could take Sprint "many quarters" to get on track. Hesse promised to put renewed emphasis on Nextel, such as offering new handsets for users including a BlackBerry with Wi-Fi capabilities.

Speculation re-emerged last week that Sprint may spin off or sell the Nextel operations. The company said in its release that it was exploring the sale of noncore assets to meet its financial obligations.

Hesse declined to comment on the sale of the asset, only saying that Sprint was "committed to reinvigorating the Nextel assets" and noting that such a spin-off would be complex.

Last Wednesday, Sprint unveiled a joint venture with Clearwire to offer next-generation high-speed wireless service. The massive partnership, which involved investments from the leaders of the cable, Internet and semiconductor industries, was lauded because it took the burden of investment off of Sprint's books.

A potential hiccup is a lawsuit filed by Sprint affiliate IPCS, which claims that the new Clearwire deal violates its exclusive rights to offer wireless service in its territory. IPCS is seeking an injunction preventing Sprint from closing the transaction until terms can be changed.

In addition to improving customer service, Sprint said it would focus more on retaining its most valuable customers. Hesse said the newly launched "Simply Everything" plan - which includes unlimited voice, text messaging, Web surfing and e-mail - has done well in keeping customers on Sprint. Later this year, the carrier plans to offer its Apple Inc. (AAPL) rival Instinct to existing customers first.

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

(Mike Barris contributed to this report.)

(END) Dow Jones Newswires

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