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Tags: Mike Caggeso

Sprint Still Paying for Nextel with Huge Loss, Canceled Dividend

By , Money Morning • February 28, 2008

Start the conversation

By Mike Caggeso
Associate Editor

Sprint Nextel Corp. (S) posted a $29.45 billion fourth quarter loss, or $10.36 a share, as declining subscribers in an increasingly competitive market took its toll on the third-largest wireless carrier.

Sales fell 5.7% to $9.85 billion. Total post-paid subscribed declined 683,000 compared to the 337,000 it lost in the third quarter.

Sprint also wrote down $29.7 billion from its $36 billion purchase of Nextel and related companies in 2005. If that expense was left out of the equation, profit was 21 cents a share, according to Bloomberg estimates.

Needing capital, Sprint scrapped its dividend and borrowed $2.5 billion under a credit line, Bloomberg reported.

"The fourth quarter financial results reflect the challenges facing our Wireless business," Dan Hesse, Sprint Nextel's chief executive officer, said in a statement, adding that Sprint is making "significant" company-wide changes to streamline operations and increase its dwindling customer base.

And like execs of other reeling U.S. companies, Hesse deflected the company's performance onto the slowing economy.

"Given current deteriorating business conditions, which are more difficult than what I had expected to encounter, these changes will take time to produce improved operating performance, and our near-term subscriber and financial results will continue to be pressured," he said. 

By "take time to produce," Hesse isn't referring to the first half of 2008, as the company expects to lose 1.2 million customers in the first quarter and that number is "unlikely to improve in the second quarter."

In a conference call, Hesse announced an unlimited calling, texting and walkie-talkie plan for $89.99 a month, undercutting similar - and recently introduced - plans by rivals
Verizon Communications Inc. (VZ), AT&T Inc. (T) and T-Mobile USA that go for $99.99 a month.

Sprint's plan follows up earlier reports that it would undercut its rivals, a strategic move that could rattle rival service providers and stoke a price war.

Some analysts went so far as to predict Sprint would undercut rivals by as much as 40%. But $89.99 isn't set in stone, especially in this highly competitive market.

Who can forget the price war between AT&T, Sprint and MCI Inc., when the companies frequently lowered prices and personally baited customers to switch teams?

And on the manufacturing side, Apple Inc. (AAPL) has knocked $200 off the cost of its iPhone since it debuted last summer.  

News and Related Story Links:

  • Bloomberg:
    Sprint Posts $29.5 Billion Loss on Nextel Writedown
  • Money Morning:
    Sprint Rumored to Undercut Rival Flat Rates, Price War on the Horizon
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