In recent months, Sprint Nextel (S) has been described as "seen turning a corner" by The New York Times and as possibly "turning around" by The Washington Post. That's not quite how Sprint CEO Daniel Hesse sees it. While he says he is very pleased with the company's progress, he told BusinessWeek: "We haven't turned the corner yet." Believe it.
Earnings of the U.S.'s third-largest wireless service provider do show some hopeful signs: Thanks to network improvements and changes Hesse has made to the carrier's billing and customer care, the percentage of postpaid subscribers jumping ship each month—a measure called churn—dropped from 2.45% in the first quarter to 2% in the second quarter. The carrier's average revenue per postpaid subscriber stayed steady instead of declining sequentially. Sprint's revenue per prepaid user rose slightly, and margins improved.
Alas, that's slim consolation. In the second quarter, the company swung to a net loss of $344 million, on sales of $9 billion, from a profit a year ago. Investors sent the shares down 14%, to 7.34, on the news, discerning troubling signs in the company's earnings and outlook. On closer examination, many of its improvements lose some of their luster. Take lower churn, for instance. The drop could partly be seasonal, as subscribers worry about planning vacations rather than seeking out better deals: Sprint reported exactly the same churn rate in the second quarter of 2007, when customer turnover fell to 2%, from 2.3%, in the quarter before. Indeed, on Aug. 6, Sprint forecast higher churn in the third quarter. Plus, don't forget that Sprint's postpaid subscriber base, from which the churn measure is derived, has shrunk from 41.6 million to 38.9 million in the past year.
Sprint's churn decline looks even less impressive when compared with the rest of the wireless industry. Every major carrier's churn has dropped in the second quarter. AT&T's (T) second-quarter postpaid subscriber churn fell from 1.2% to 1.1% sequentially. The wireless industry has matured, and subscribers no longer change service providers as frequently. In that environment, subscriber additions may be a better measure of a company's performance, believes Craig Moffet, an analyst with Bernstein Research—and Sprint's adds are not pretty.