Broadband Cable Association of Pennsylvania


October 26, 2012

Sprint Nextel Corp.'s third-quarter loss widened on steep customer losses and the continuing shutdown of its older Nextel network.

The third-largest U.S. wireless carrier, which earlier this month agreed to sell a 70% stake to Japan's Softbank Corp. for about $20 billion, lost 456,000 contract customers in the latest quarter. Sprint's subscriber loss compares with an addition of 151,000 customers for rival AT&T Inc., while industry leader Verizon Wireless last week said it added 1.5 million new contract customers in the same period. Verizon Wireless has a significant lead on other carriers in rolling out its next-generation LTE network, and was first to launch shared-data plans. "There are some temporary advantages that Verizon has due to its network, but we do not see making any changes to our rate plans," Sprint's Chief Executive Dan Hesse said on a conference call Thursday. The company has tried to differentiate itself as being the only major carrier offering Apple Inc.'s iPhone with an unlimited data plan. But Sprint's iPhone sales were flat in the past two quarters-in contrast with rivals that saw sharp growth from the recently launched model.

The Overland Park, Kan., carrier said retention of Nextel platform customers came in at 59%, a level that the company had said was unsustainable. While Sprint is focusing on recapturing Nextel customers-a strategy that is $200 cheaper-per-customer than obtaining customers in the mainstream market-this effort is hurting the growth of Sprint customers outside of those coming from Nextel. Sprint said the Nextel platform shutdown remains on pace for the middle of 2013. While the focus is on converting Nextel customers, the company will likely increase its advertising spending in the fourth quarter, Mr. Hesse said in an interview. The efforts will increase as the company's next-generation LTE network becomes larger.

The Softbank deal has already yielded cash to Sprint, which sold $3.1 billion in convertible bonds to Softbank earlier this week, but Mr. Hesse wouldn't comment on the plans for that cash. He said an increase in funding to the network overhaul wouldn't affect the next two quarters but could increase the pace for the second half of next year. Sprint warned Thursday that the plans are running a quarter behind its year-end goal of 12,000 sites. The delay stemmed from multiple factors, Mr. Hesse said, including issues at three of its biggest suppliers, along with birds nesting on its towers and a hurricane in the quarter.

The company sold 1.5 million iPhones in the quarter, with 40% going to new customers, a rate higher than its competitors. The overall unit sales and growth, however, were much lower than rivals. AT&T reported iPhone activations rose 27% from the previous quarter to 4.7 million, while Verizon Wireless reported a sequential rise of 15% to 3.1 million. Verizon Wireless is a joint venture of Verizon Communications Inc. and Vodafone Group PLC. Sprint saw a slowdown of iPhone sales in the quarter as customers anticipated the launch of the new iPhone 5, which can run on LTE network. Mr. Hesse declined to comment on iPhone 5 sales, but said the company sold out in the third quarter. He said that adding Apple's new iPad models, which finally adds the capability to use Sprint's next-generation network when it launches next month, would help boost customer additions. The company unveiled new data plans for the tablets on Wednesday. "Not having the iPad has been a significant disadvantage," he said. "Tablets have been a very significant piece of AT&T and Verizon's net adds in recent quarters."

While the Nextel platform-the push-to-talk iDEN network-lost many subscribers, the company was able to recapture 59% of the leaving customers on the Sprint platform. Sprint retained 60% last quarter and just 27% a year ago. "While we are disappointed with the faster losses, we believe getting iDEN out of the base faster is a good thing," J.P. Morgan analyst Philip Cusick said. Sprint cut the size of the Nextel customer base by 30% in the quarter. Chief Financial Officer Joe Euteneuer said that clearing customers off of the older network is one the keys to long-term margin improvement. The recapture rate is expected to drop to 45% in the fourth quarter and decline further in 2013.

The reason for the drop is that most of the recent retention has come from consumers, while about 1.8 million of the 2.3 million remaining Nextel customers are more complex business accounts. Sprint still plans to shutdown the network in mid-2013. Sprint reported a loss of $767 million, or 26 cents a share, compared with a loss of $301 million, or 10 cents a share, a year earlier. The most-recent quarter included a charge of 13 cents a share, primarily related to Network Vision, including the expected shutdown of the Nextel platform. Wall Street Journal

Current TV, the ratings-challenged cable network started by former Vice President Al Gore, has put itself up for sale, The Post has learned. "Current has been approached many times by media companies interested in acquiring our company," CEO Joel Hyatt told The Post. "This year alone, we have had three inquiries. As a consequence, we thought it might be useful to engage expertise to help us evaluate our strategic options." Current is still interviewing investment banks and has yet to launch a formal sales process, said one source.

The service, launched in August 2005 after Gore had begun his crusade against global warming, has churned through programming and personnel as it tried to find its voice. The channel started out as youth-centric and user-generated before going heavier on news and documentaries. Its latest incarnation is as a left-leaning cable news network, a la MSNBC. In January 2011, it hired former "Countdown" anchor Keith Olbermann, after MSNBC canceled his contract. Then in March, Current also cut Olbermann loose. The network now airs such shows as "Joy Behar: Say Anything!" and "Viewpoint with Eliot Spitzer." Current, owned by Gore, Hyatt and some private backers, is in about 60 million homes, which could make it valuable to buyers looking for cable network distribution. It gets about 12 cents a subscriber from pay-TV operators that carry it, or around $82 million last year, according to SNL Kagan. Ad revenue last year was estimated at just $16.9 million. New York Post

In yet another reminder that Republicans are smelling blood in the water in the race between U.S. Sen. Bob Casey and Republican Tom Smith, a GOP-friendly super PAC will start airing a TV ad hitting Casey for his support for the Wall Street bailout in 2008. The new group, Fight for the Dream, is run by Lehigh County Republican Chairman Wayne Woodman. And it received a $240,000 infusion of cash from the company that bought Smith's coal mining company, our Washington colleague Colby Itkowitz reports this morning.

Woodman's PAC initially supported Smith's GOP primary challenger, Steve Welch, and even aired some anti-Smith ads during the spring canvass. But with new polls showing Smith within striking distance of Casey, Woodman's group (courtesy of the donation from Rosebud Mining Co.) has circled the wagons and will start airing the ads in "select markets" The ad, Itkowitz reports, features a line not often heard in attack advertisements on Democrats: "We need someone who will fight for Pennsylvania families, not Wall Street millionaires," a narrator says in the spot. It's made all the more ironic given the fact that Smith is a gazillionaire. But it wouldn't be politics without some cognitive dissonance, after all.