Sprint Reports Profit as Fewer Users Leave Than Projected

Sprint Corp. (S), the third-largest U.S. wireless carrier, reported a third-quarter profit as fewer subscribers departed than analysts had estimated.

The company lost 360,000 contract subscribers, compared with the average estimate of 371,000, according to eight analysts surveyed by Bloomberg. The company expects to gain subscribers in the fourth quarter, Chief Financial Officer Joe Euteneuer said today on a conference call.

Sprint, which was acquired by SoftBank Corp. (9984) in July for $21.6 billion, closed down its outdated Nextel network on June 30, losing some subscribers to other carriers in the process. The Overland Park, Kansas-based company said it sold almost 1.4 million of Apple Inc. (AAPL)’s iPhones.

“You have to wonder when Sprint will get aggressive on pushing subscriber growth,” said Kevin Roe, an analyst with Roe Equity Research based in Dorset, Vermont. “I believe Sprint will ramp up their marketing and promotions this quarter and through the first half of 2014.”

An increase in the value of an investment in Clearwire Corp. helped Sprint record net income of $383 million, compared with a loss of $767 million a year earlier, the company said today in a statement.

Sprint rose 3.7 percent to $6.93 at the close in New York. The shares have gained 25 percent since the SoftBank acquisition closed in July.

Third-quarter revenue was $8.68 billion, below the $8.78 billion average estimate of analysts compiled by Bloomberg. The average Sprint contract user’s phone bill was $64.28, an increase from $64.20 in the second quarter. Analysts projected $62.13 on average.

Clearwire Gain

The company recorded a one-time after-tax gain of $1.4 billion to reflect the higher value of its shares of Clearwire, which rose as Sprint competed with Dish Network Corp. (DISH) for control of the wireless-Internet company. Sprint eventually won that battle with a $3.9 billion transaction, completing the acquisition on July 9.

Sprint’s third-quarter operating loss widened to $398 million from $231 million a year earlier.

Sprint is spending about $16 billion over two years on network upgrades to catch up to AT&T Inc. (T) and Verizon Wireless in fourth-generation long-term evolution, or LTE, coverage. LTE delivers fast Internet access allowing users to stream video and download music.

The company is introducing a service called Sprint Spark to deliver faster download speeds in about 100 cities over the next three years, it said today.

‘Tough Transition’

T-Mobile US Inc. (TMUS), which has been attracting customers with cheaper plans and no-contract service agreements, is neck-and-neck with Sprint in cities covered with LTE service.

“They are still in a tough transition as they work to upgrade their network,” James Moorman, an analyst with S&P Capital IQ in New York, said of Sprint. “Until their network is more comparable to the bigger carriers, they will have a problem with customer churn.”

Last month, in response to T-Mobile and the other carriers, Sprint gave customers an option to upgrade their phones more often. The Sprint One Up plan lets users get a new phone every 12 months, imitating similar offers like Jump from T-Mobile, which lets customers upgrade twice a year for an extra $10 a month.

Earlier this month, in the first management shake-up under new owner SoftBank, Sprint reorganized its sales organization, included the exit of Chief Sales Officer Paget Alves and Chief Marketing Officer Bill Malloy.

While expectations are low for Sprint this year, the outlook may improve as the company starts to use airwaves acquired from Clearwire Corp. to improve network quality, competing with the top carriers on performance, Jennifer Fritzsche, a Wells Fargo analyst, wrote in a note earlier this week.

“Spectrum could be Sprint’s secret sauce,’” Fritzsche wrote. “In our view, the ‘new’ Sprint’s strategy will be all around network speed and throughput.”