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Sprint Nextel Loses Nearly $30 Billion in Q4

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NEW YORK (Dow Jones) Sprint Nextel posted a dramatic $29.5 billion fourth quarter loss even as it unveiled an unlimited wireless plan in a bid to stem the flood of subscriber defections.

The Overland Park, Kan., company also borrowed $2.5 billion under its revolving credit facility to increase financial flexibility, suspended dividend payments and admitted that business conditions are deteriorating, more difficult than expected and unlikely to improve soon.

The news sent Sprint shares down as much as 13% to $7.75, their lowest levels since October 2002. The stock recently traded at $8.30, down 7.3% from its close Wednesday of $8.95.

Sprint, the nation's No. 3 wireless carrier by subscribers, has been losing wireless customers to rivals, while sales have been falling. The company's problems stem from poor customer service, a reliance on customers who are poor credit risks and a muddled marketing message. Things aren't expected to get better.

"The trends are unlikely to improve in second quarter," Chief Executive Dan Hesse told analysts in a Thursday conference call. "We are taking the customer defection issue seriously."

The company expects the turnover rate to rise 20 to 30 basis points in the first quarter as it loses another 1.2 million post-paid subscribers, and the rate isn't expected to improve in the second quarter, said acting Chief Financial Officer William Arendt. The loss of 1.2 million in the first quarter is roughly equal to the total loss Sprint had in all of 2007. Sprint also expects first-quarter adjusted operating income before depreciation and amortization to be in the range of $1.8 billion to $1.9 billion.

Sprint fired back at its rivals with a $100 plan that covers "simply everything," Hesse said. That includes unlimited voice, Web surfing, email, text messaging, push-to-talk services, GPS navigation and features such as access to Nascar and National Football League content.

The eagerly anticipated plan follows Verizon Wireless' $100 unlimited voice-only plan, which was unveiled early last week. AT&T quickly followed, and Deutsche Telekom's T-Mobile USA put out a plan that includes unlimited text messages. The move is a significant departure from the traditional model, in which consumers purchase "buckets" of minutes.

But Hesse warned that the new plan wasn't going to be a catch-all for Sprint's problems.

"I want to make it clear that it's not a silver bullet," he said. "But it's a very important piece." Indeed, few believe the new plan will significantly help Sprint.

"It helps them on the margin, but not enough to make a huge difference," said Steve Clement, an analyst at Pacific Crest Securities. "It's not the sweet spot for a majority of the customers and affects a relatively small portion of the base."

For the quarter ended Dec. 31, Sprint reported a net loss of $29.45 billion - more than the company's market capitalization - or $10.36 a share, compared with net income $261 million, or 9 cents a share, a year earlier. Results for Sprint included a $29.7 billion goodwill write-down.

Excluding items, earnings fell to 21 cents a share from 29 cents a share, but surpassed the average analyst estimate of 18 cents a share.

Revenue decreased 5.7% to $9.85 billion, below the Thomson Financial estimate of $9.92 billion.

In the fourth quarter, wireless revenue fell 2% from the third quarter and 6% year-over-year. Sprint's struggling wireless operations reflect, in part, the company's difficulties in merging the Sprint and Nextel operations. When the marriage of Sprint and Nextel was announced in 2005, each company had a market capitalization of about $33 billion. Now, the combined company's market cap is slightly below $25 billion, according to FactSet Research.

Hesse, who took over as CEO in December, said the company is addressing its shortcomings. Last month, Sprint announced 4,000 job cuts and the closure of 8% of its company-owned retail stores and 20% of all available locations. Hesse said Thursday that the changes are unlikely to improve operations quickly.

"Given current deteriorating business conditions, which are more difficult than what I had expected to encounter, these changes will take time to produce improved operating performance, and our near-term subscriber and financial results will continue to be pressured."

Sprint said losses of post-paid subscribers - customers who sign long-term contracts and pay monthly bills - have continued in the current quarter. Average revenue per post-paid user fell 4%, while post-paid churn, or customer turnover, was flat at 2.3%.

The average revenue per user - typically a lone highlight for Sprint - is expected to fall sequentially by $2 to $56 in the first quarter, partly as a result of the continued loss of higher paying Nextel customers.

Total wireless subscribership rose 1.3%, helped by Sprint's Boost Unlimited program, a prepaid service that provides unlimited calling and texting for a flat fee, which jumped to 7.5% from 6.2%.

Hesse added that in light of current capital market conditions, "we are taking steps to increase our financial flexibility and mitigate refinancing risk by borrowing funds from a revolving credit facility and discontinuing declaring a dividend for the foreseeable future." Sprint paid an annual dividend of 10 cents a share.

Sprint said it borrowed $2.5 billion under its revolving credit facility to help mitigate any potential financing risk related to $1.25 billion in bonds that mature in November, as well as the approximately $400 million outstanding under its commercial paper program and $600 million of bonds that mature in May 2009. About $500 million of borrowing capacity remains available under the revolving credit facility, the company said.

While discouraging to Wall Street, obtaining more financing isn't a sign of pending disaster, analysts said.

"It's certainly not good, but they're not in any near-term financial danger," said Christopher King, an analyst at Stifel Nicolaus & Co. He added that the company has enough cash to get it through 2010.

Hesse remained mum on the company's WiMax plans, saying that Sprint continues to talk with Clearwire regarding a partnership, but no final agreement has been struck.

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

(John Flowers and George Stahl contributed to this report.)

(END) Dow Jones Newswires

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