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Sprint Eagerly Awaits Pre

Posted on Thursday, Jun 4th 2009

The Palm Pre is set to launch this weekend, and the buzz I see around it is one of keen anticipation. The phone’s exclusive carrier is Sprint, which is no giant like AT&T but rather a flickering light whose only hope seems to be the Pre. Let’s take a closer look at Sprint’s recent performance as well as that of T-Mobile.

In its first quarter results released on May 4, Sprint reported Q1 revenue of $8.2 billion, down 12% due to lower wireline voice and wireless revenue. Net loss was $594 million or $0.21 per share versus loss of $505 million and $0.18 per share last year.

Wireline revenues declined 10% y-o-y and 4% q-o-q to $1.5 billion as legacy voice and data declines offset Internet revenue growth.

Wireless service revenues declined 10% y-o-y and 2% q-o-q to $6.4 billion mainly due to fewer subscribers. The total number of customers at Sprint dropped to 49.1 million from 49.3 million in the previous quarter. It lost 182,000 customers in the quarter including 1.25 million postpaid customers. Postpaid churn was 2.25% compared to 2.16% in the fourth quarter and 2.45% last year. Postpaid ARPU was stable at $56, mainly due to growth in fixed-rate bundled plans such as Simply Everything; the figure was offset by seasonal declines in usage.

Despite lower revenues, Sprint managed to increase its free cash flow to $796 million from $536 million in the previous quarter due to improved cash from operating activities and a decrease in capital expenditures. Net debt decreased approximately $800 million from the previous quarter to $17.1 billion, and the company ended the quarter with a cash balance of $4.5 billion. Sprint noted in the earnings call that to be in a position to fund its debt obligations through 2013, it needs to generate $4.3 billion in cash over the next five years.

Sprint expects that subscriber losses will improve in 2009 over 2008. This is largely contingent on the success of the Palm Pre, which is available on a two-year contract with Sprint. We have seen how the iPhone has added momentum to AT&T’s success. However, unlike AT&T, Sprint would not be the exclusive carrier for Pre. Will the Pre be able to help in Sprint’s turnaround as well as Palm’s?

Sprint is currently trading around $5 with market cap of about $14.5 billion. It hit a 52-week high of $5.94 on May 20.

Chart for Sprint Nextel Corp. (S)

T-Mobile is preparing a launch of its own: a second Google Android phone after the success of the G1. In the first quarter, T-Mobile reported 415,000 net new additions, down from 621,000 last quarter mainly due to higher churn. Churn was 2.3% versus 2.4% last quarter and 1.7% last year. ARPU was also down to $48 from $50 last quarter and $51 last year. Q4 analysis is available here.

Total revenue was $5.40 billion, up from $5.19 billion last year, mainly due to growth in the number of contract customers and the SunCom Wireless acquisition, which contributed $202 million compared to $86 million last year. Net income was $322 million, down from $483 million last quarter and $462 million last year.

T-Mobile’s parent company Deutsche Telekom AG (NYSE:DT), Europe’s largest phone company, reported a 6% increase in revenue to €15.9 billion and a loss of €1.12 billion after writing down its UK wireless unit, T-Mobile UK. T-Mobile UK revenue declined 21% due to the drop in the value of the pound sterling and fierce competition. T-Mobile Deutschland, the exclusive carrier for the iPhone in Germany, reported revenue of €1.9 billion with service revenues increasing 1%.

DT is currently trading around $12 with market cap of about $50 billion. It hit a 52-week low of $10.71 on May 1.

Chart for Deutsche Telekom AG (DT)

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