Sprint Nextel Q2: So far, so bad

Yesterday evening (UK time) Sprint posted its Q2 results showing that revenues and subscriber numbers continue to fall. The market reacted to the Virgin Mobile news by knocking 1.4 per cent off Sprint's stock price and then sliced a further 11.7 per cent away as the latest bad figures percolated through.

Desperately seeking to find the teeniest glimmer of a silver lining in the storm clouds massing over his company, Sprint Nextel's CEO, Dan Hesse, claimed to be "encouraged" that the the rate of attrition of departing subscribers has slowed for a while. He said, "Whilst we are not satisfied that we lost a quarter of a million customers in the quarter, the rate of defections is slowing". Now there's a man who's easily pleased.

Sprint Nextel reported a loss os US$384 million for the quarter ended June 30 this year. For the same period a year ago the loss was $344 million so things are getting worse but Dan's a "glass half full" man if ever there was one. Revenues too were down by a full 10 per cent at $8.14 billion. For the same quarter last year they were $9.06 billion.

All around the world fixed line revenues are in decline and have been for several years now, however Sprint is contriving to lose mobile revenues as well. They fell by nine per cent over the period as a further 257,000 subscribers voted with their feet and deserted the carrier. That's on top of the 182,000 that walked in Q1. And that's just prepaid customers.

The postpay results are even worse. in Q2 991,000 contacts were not renewed. Sprint also lost 1.23 million postpay customers in Q1 and 780,000 during Q2 a year ago. That rate of attrition is simply insupportable in the long term.

To put things in perspective, as Sprint was losing subscribers hand-over-fist, the company's arch-rivals Verizon and AT&Trespectively added 1.1 million and 1.37 million new customers to their rolls in the same period.

Again though, Mr Hesse is taking remarkable succour from the fact that 938,000 new prepaid customers subscribed to Sprint's iDEN network in Q2.

Most of these were new recruits to the "all-you-can-eat" unlimited calling, texting and data services available on Sprint's subsidiary "Boost" network for a flat fifty bucks a month.

It's interesting to note that the Virgin Mobile's prepay customers, whom Sprint will soon clutch, expensively, (at a 31 per cent premium to be precise) to its corporate bosom have an ARPU of just $20 a month.

Sprint has also been holding much store by the Palm Pre - a smartphone device for which it has secured exclusive selling rights and which it hopes will be a viable alternative to the all-conquering iPhone.

It may be too early to tell with any certainty but, given that the CEO refused to provide Palm Pre sales figures it looks like that faith may be misplaced. All Dan Hesse would say is that the Palm Pre has "too some extent mitigated the adverse effect" that Sprint would have suffered had it not had something in its locker with which to counter the latest update of the greatest handset the world, the solar system, the galaxy and the known universe has ever beheld.

Sprint has been losing subscribers ever since Q2 2007 and its acquisition of Nextel (as part of a costly defensive strategy to slow such attrition) has not been a success. Meanwhile, Sprint's wireline arm continues its remorseless decline. Revenues there fell by 11 per cent in Q2 to $1.4 billion.

Nonetheless a remarkably bullish (or should that be ostrich-like) Dan Hesse says things'll be OK because "the expected losses" of subscribers "will be less than in 2008". Whoopee! The CEO also pointedly declined to provide any other financial guidance for the rest of this year and into next.

Perhaps the funniest and most self-delusional remark made by Mr. Hesse is that despite all the defections he claims that Sprint services "hold up well in blind taste testings". Yes and so do pigs testicles boiled up with with cabbage and 1,000 year-old eggs - until the punters actually see what they are being given.

Unsurprisingly, most analysts are not as upbeat as Hesse. For example, Craig Moffat of Bernstein Research says, "Sprint Nextel's first half post-paid subscriber losses have been significantly worse than last year. A second half turn-around appears highly uncertain, at best."

I put it to you that his is a rather more sober and dispassionate assessment, perhaps because it reflects a degree of commercial reality rather than wishful thinking.