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Carriers: Sprint and T-Mobile

Posted on Wednesday, Mar 11th 2009

After two years of gloating over the iPhone, we finally might have something else to talk about: the Palm Pre, which is to be launched by Sprint on March 15. Both Palm and Sprint have been hit hard by the iPhone, or the lack of a good enough iPhone challenger. There are a lot of hopes attached to the Palm Pre. In this post, let’s take stock of Sprint’s recent performance as well as that of T-Mobile.

On February 19, in its fourth quarter and full-year 2008 results, Sprint Nextel reported that Q4 revenue declined 14% to $8.4 billion. Net loss was $1.6 billion or $0.57 per share compared to a loss of $29 billion or $10.31 per share last year. Sprint has been in the red for so long that analysts were expecting even greater losses, and the company beat their estimates. Earlier coverage is available here.

Revenue in 2008 was $35.6 billion, down from 40.1 billion last year. Net loss was 2.8 billion, down from loss of $29.4 billion last year. Sprint generated free cash flow of $536 million in the quarter, retired $1 billion in debt and ended the quarter with $3.7 billion in cash.

The poor economy has been tough on Sprint. With businesses downsizing, its number of business customers has declined. It lost 1.3 million wireless subscribers in the quarter, of which 1.1 million were post-paid customers, consistent with the previous quarter. It lost 4.5 million customers in 2008 to end the year with 49.3 million subscribers. Churn was 2.16%, up from 2.15% last quarter but better than last year’s 2.29%, driven by an improvement in CDMA churn. Post-paid ARPU continued to remain stable at $56. The PDA and Touch device category ARPU exceeds $80, and the number of CDMA subscribers with PDA and touch devices grew 125%. Sprint’s industry-leading CDMA data ARPU of $17.75 has grown by 21%. The Smartphone and Touch categories accounted for about 30% of its handheld device sales, driven by strong sales from Instinct and HTC Touch Pro. QWERTY devices that cater to the growing popularity of text messaging accounted for about 41% of Q4 handheld sales.

For 2009, Sprint has announced that it will be the exclusive carrier partner for both the Palm® Pre™ and Motorola Stature™ i9. It plans to launch seven new Nextel Direct Connect handsets most launching during the first half of the year.

The stock is currently trading around $3.5 with a market cap of about $10 billion. It touched a 52-week low of $1.35 on November 20. The stock was also upgraded by Friedman Billings just before its earnings release. A lot is expected from the Palm Pre, even a turnaround from Sprint. However, it would take much longer to become visible. To read how smartphones are affecting the growth of wireless industry leaders ATT and Verizon, read this.

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On February 27, Deutsche Telekom AG (NYSE:DT), Europe’s biggest telephone company and parent company of T-Mobile US, reported a surprise fourth-quarter loss: an impairment charge and job cut-related expenses. Net loss was €730 million ($920 million), compared to a loss of €750 million ($949 million) last year. Revenue was up 2% to €16 billion.

For the full year, DT reported net profit of €1.48 billion, up from €571 million in 2007.

While its landline business is declining, its mobile communications business, T-Mobile, reported Q4 net profit of €1.09 billion ($1.38 billion) and 7.3% growth in revenue to €9.23 billion ($11.7 billion). T-Mobile USA continued to drive the unit’s profits, posting double-digit growth rates. It has a total customer base of 128.34 million, up 6.3%. This is slower than the growth of 10.3% in 2007.

The star performer in DT’s mobile business is T-Mobile US, while T-Mobile UK and T-Mobile Germany (the exclusive iPhone carrier in Germany) faced fierce competition. T-Mobile Germany added more than 950,000 new contract customers in 2008 mainly due to the iPhone but its annual revenue decreased 2.8% to €7.8 billion euros ($9.9 billion). Doesn’t seem like the iPhone did for T-Mobile what it did for AT&T in the US.

T-Mobile US, the No.4 carrier in the US, reported revenue of $5.72 billion, up from $5.51 billion last quarter and $5.07 billion last year. Sequential revenue growth was driven by the success of the T-Mobile G1 with Google. The acquisition of SunCom contributed $189 million in revenue. Net income was $483 million, up from the $442 million in Q308 and $383 million last year.

T-Mobile US added 621,000 net new customers in the quarter, down from 670,000 last quarter and 951,000 last year. It ended 2008 with 32.8 million customers. Churn was consistent with Q3 levels at 2.4%. ARPU was $50, down from $52 last quarter and also last year.

DT is currently trading around $12 with a market cap of about $52 billion. It hit a 52-week low of $11.56 on February 24.

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This segment is a part in the series : Carriers


. Sprint and T-Mobile

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