Sprint may outsource network as losses widen
Sprint Nextel posted worsening first-quarter losses amid reports that the carrier may outsource its network to Ericsson in an effort to cut costs.
Sprint subsidiary Clearwire is the repository of the 4G hopes of both parent Sprint and three major MSOs: Bright House Networks, Comcast and Time Warner Cable.
In the past, Clearwire has tried to inoculate itself against its parent’s financial woes by consistently reporting that it has the finances to proceed with its build-out schedule. Indeed, Sprint reiterated its plans to launch WiMAX service in Atlanta, Las Vegas, Chicago, Charlotte, N.C., Dallas/Ft. Worth, Honolulu, Philadelphia and Seattle in 2009. In 2010, Sprint – through Clearwire – expects to roll out the service in New York, Boston, Washington, D.C., Houston and the San Francisco Bay Area.
A deal with Ericsson could cut network costs by about 20 percent and allow Sprint to transfer 5,000 to 7,000 employees, according to The Wall Street Journal (story here). People familiar with the matter said Sprint’s board has yet to decide if the cost savings justify the complex arrangement, and it’s still possible Sprint will back out of the deal.
The news comes on top of the company’s previous cost-cutting measures. Sprint announced in late January that it would cut 14 percent of its workforce, or 8,000 people, and the company cut capital spending by 79 percent in its first quarter.
Ericsson did not reply to a request for comment by press time. Sprint company spokesman Scott Sloat declined to comment, but the news comes as Sprint reported widening losses, a high churn rate and flat ARPU in its first-quarter results.
The company lost $594 million in the first quarter, or 21 cents per share, compared with last year’s first-quarter loss of $505 million, or 18 cents per share. The widening loss was aggravated by a $327 million charge related to severance costs and slumping subscribership. Sales fell 12 percent to $8.21 billion.
Sprint’s subscriber base shrunk from 49.3 million to 49.1 million after losing 1.25 million postpaid customers and 90,000 prepaid customers. The company has lost more than 6 million customers in the past six quarters.
Increases in wholesale subscribers and prepaid customers helped to offset losses of postpaid customers. Open network devices like the Amazon Kindle 2 drove a 394,000 net increase in wholesale subscribers, although most of the growth was in services with lower ARPU. The company also gained a net 764,000 prepaid subscribers on its iDEN network.
The company’s postpaid churn rate continued to be higher than that of competitors AT&T and Verizon Wireless, hitting 2.25 percent in the first quarter. Sprint said the sequential increase in churn was driven by deactivations on business lines, though the churn rate decreased compared with last year’s figure of 2.45 percent. Churn in the company’s prepaid Boost Mobile segment fell to 6.9 percent as the prepaid service attempted to fix ongoing problems with text messaging delivery delays caused by growth in subscribers.
Postpaid ARPU remained flat at $56 as growth in fixed-rate bundles offset seasonal declines in usage. Data revenues accounted for more than $15 to overall postpaid ARPU. Prepaid ARPU grew to $31, from $29 in last year’s first quarter and $30 last quarter.
Sprint expects subscriber losses to improve this year as it prepares to be the exclusive carrier of the Palm Pre. The iPhone competitor will be ready to launch by May 16, according to a company planning document leaked to Engadget.
Sprint often launches products on a Sunday, which has led to some speculation the handset could come out as early as May 17. The leaked document seemed to reaffirm the carrier’s commitment to launch the phone in the first half of the year, so consumers can reasonably expect the device to be available by the end of June.
In response to the leaked document, Sprint spokesman Sloat gave no update beyond the company’s initial announcement that the device would be launched in the first half of 2009.
–Brian Santo contributed to this report