As previously mentioned, Sprint Nextel Corp (S) continues an impressive comeback that has seen the number three domestic wireless provider reclaim its position as a force in the domestic markets. Unfortunately though, the Q3 2012 earnings report showed a surprising lack of iPhone activation growth.
While the company continues to win awards for great customer service causing the customer churn to remain low, actual new additions of the iPhone fell behind market leaders AT&T Inc. (T) and Verizon Communications (VZ).
According to TechCrunch, the two leading providers actually saw iPhone activations grow sequentially unlike Sprint.
- Q2 - 1.5M
- Q3 - 1.5M
- Q2 - 3.7M
- Q3 - 4.7M
- Q2 - 2.7M
- Q3 - 3.1M
Part of the issue might be the lack of a significant 4G network. Otherwise, the unlimited data plans should be attracting customers in droves from the larger providers. While 40% of iPhone users are new customers to Sprint, one could argue for higher levels considering the lack of existing iPhone customers.
The resurgence of T-Mobile (DTEGY.PK) remains a big concern following the news that the fourth place provider scored a $2.4B cash deal to leaseback cell towers. On top of that, T-Mobile hired a heavy hitting CEO to reinvigorate subscriber growth with a target on Sprint.
As we wrote back at the end of August, Sprint was starting to thrive by being the leading wireless provider with an unlimited data plan and the non-duopoly player that has the iPhone. Now, T-Mobile plans to challenge Sprint with stiff competition.
Another competitive issue is that the Softbank deal likely invigorates AT&T and Verizon to keep spending on upgrading their respective networks. In fact, the CFO of Verizon was adamant that network spending would increase if a competitive threat existed. (See article here).
Q3 2012 Highlights
Below are the highlights from the Q3 2012 earnings report:
- Sprint platform wireless service revenue growth of 14 percent year-over-year; eighth consecutive quarter of double digit percentage year-over-year growth
- Nearly 900,000 Sprint platform net additions
- Sprint platform postpaid ARPU growth of 5 percent year-over-year
- Operating loss of $231 million, including accelerated depreciation of $397 million; Adjusted OIBDA* of $1.28 billion
- Best ever third quarter for both Sprint platform postpaid churn of 1.88 percent and Sprint platform prepaid churn of 2.93 percent
- Continued high postpaid Nextel recapture rate of 59 percent
- Strong total iPhone sales of approximately 1.5 million - 40 percent to new customers
- Network Vision deployment continues to gain momentum
- 4G LTE now launched in 32 cities with over 115 more expected in coming months
- Construction started in over 200 cities
- Over 13,500 sites now ready for construction
Sprint easily beat analyst estimates for a loss of $0.40 by reporting a loss of only $0.26.
Sprint's stock has slipped roughly 10% since hitting a high of $6 following the Softbank agreement.
1 Year Chart - Sprint
As highlighted before, the biggest problem with Sprint remains that the competition never ceases in the domestic telecom sector. Analysts expect large losses in 2013, yet T-Mobile wants to attack the customer base.
Regardless of all the good news surrounding Sprint lately, the company still couldn't sequentially grow iPhone activations even while AT&T and Verizon combined added 1.4M more iPhone customers.
While Sprint appeared like an attractive investment back in the late summer, all of the competitive moves in the sector likely only hurt all of the companies involved. With Softbank offering 55% of the outstanding Sprint shares $7.30, investors should accept that offer for all of the shares possible. The remaining 45% of your shares aren't likely to obtain any prices near that buyout level for a long time.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Please consult your financial advisor before making any investment decisions.