Another lousy quarter for Sprint Nextel (S) — the No. 3 wireless provider lost more than 1 million wireless subscribers and missed the Street’s revenue projections.
From the call: The company is still looking for more ways to cut costs, including potential layoffs. New CEO Dan Hesse is in no rush to get rid of the company’s underperforming Nextel walkie-talkie unit; instead, he wants to “reinvigorate” it. (But “nothing is off the table.”) Key focus: Retaining existing customers rather than just chasing new ones. And he thinks customer retention will improve during Q2.
Sprint posted $9.3 billion in Q1 sales, down 8% year-over-year and short of the Street’s $9.4 billion consensus. Sprint’s Q1 net loss more than doubled year-over-year to $505 million. Adjusted EPS came in at 4 cents per share, beating the Street by 2 cents per share.
Still the most obvious problem with Sprint: Its customers are fleeing. Last quarter, Sprint lost 1.09 million subscribers — or 2% of its base — including 1.07 million valuable, “postpaid” subscribers that pay bills each month and spend more money per month on wireless service than “prepaid” subscribers. Silver lining: That’s better than the 1.2 million subs that Goldman Sachs analyst Jason Armstrong estimated they would lose.
Meanwhile, the average subscriber’s bill declined to “a little under $56,” down 6% year-over-year and down 4% quarter-over-quarter. Why? Sprint blames “ongoing pressures” on revenues for plain-vanilla mobile phone calls, offset (not enough, apparently) by revenue from data services like text messaging, ringtones, wireless Web access, etc. (Another bad sign: That the company is putting metrics like “a little under $56” in its press release instead of the actual number.)
LIVE Conference Call notes:
8:03 Getting started. Standard disclaimers.
8:04 Dan Hesse joins. Higher churn and lower ARPU in postpaid base. Very solid quarter in wireline, which will gain in importance over time.
8:06 Going over “customer experience” improvements. Customer service, understanding the bill, etc.
8:07 Still “far from where we need to be.” But first-call resolution levels best since merger. Calls per customer to care also improved in Q1. Conversion to single billing system is largely complete; easier to care for customers this way.
8:08 Empowering store salespeople to help solve customer issues.
8:09 ARPU decline is because customers we’ve been losing had higher ARPU than new subscribers we’re getting.
8:10 CDMA-based Nextel (QChat) working well in test markets. Talking about Samsung Instict, the iPhone lookalike. Supply could lag demand. Offering to existing Sprint subs first, not new ones.
8:11 Clearwire deal: Sprint will have “at least 2-year” head start over AT&T, Verizon LTE.
8:13 Focusing on custom “value” versus volume, focusing on retention.
8:16 More profit & loss accountability for senior management.
8:17 Q2 outlook: Improving experience should improve churn, but postpaid subscriber losses should still be big, as lower gross adds offset by better churn. Declining OIBDA in Q2, will stabilise by end of year. Want to manage business to be free cash flow-positive.
8:19 Going over stats from press release.
8:21 Higher voluntary churn in Q1, including more-than-typical contract expirations.
8:23 Data revenue now more than 20% of total ARPU. Leading growth: Aircards, text messaging, and Web access bundles.
8:26 Core wireless capex should be down. Sprint should get reiumbursed for Xohm capex after Clearwire (CLWR) deal closes.
8:27 Could cut cash burn by firing people, among other reductions.
8:28 Q&A begins
8:28 Expanding unlimited offering to people with bad credit? Customer satisfaction with unlimited? Expecting fewer calls to care as people won’t need to ask about minutes, overages, etc. Will be pressure on gross adds going forward. Going to be focused on profitability, more on retention. Will see fewer gross adds going forward. Not necessarily looking for unprofitable customers and putting them on either network.
8:31 Spinning off Nextel network could be complex. Focusing on reinvigorating Nextel/iDEN. RIM (RIMM) BlackBerry later this year with wi-fi. Spinoff off the table? Don’t comment on speculation. As part of ongoing way we look at our business, “nothing is off the table.” As I mentioned earlier, we are really committed to reinvigorating Nextel DirectConnect; would also be significant complexities in splitting network.
8:33 Will be reimbursed for both capex and opex for Xohm.
8:34 Eliminated some fees at bottom of bill as part of improving customer satisfaction.
8:35 No comment on ‘non-core’ assets they might sell.
8:38 Roughly 80% of network will have QChat launched.
8:39 Going to announce a COO? Trying to have flatter org; want more direct reports. Do not intend to have a COO or CMO. New org is largely complete.
8:42 Churn improvement going into Q2 both voluntary and involuntary.
8:44 Having QChat on CDMA gives us alternatives if change iDEN strategy going forward.
8:45 Mid-level rate plans will get simpler, too.
8:49 Subscriber losses will continue to pressure profitability.
9:01 Getting good response to ad with Hesse in it.
9:01 Call over.