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Thursday, July 28, 2011, 04:00 pm PT (07:00 pm ET)

Sprint posts massive subscriber exodus in failing to compete with iPhone

Shares of Sprint Nextel fell almost 20 percent after the company posted heavy wireless subscriber losses that underlined a failed strategy in competing with US iPhone carriers.

Sprint invested heavily to build a faster WiMAX 4G network, promoting the HTC Evo 4G as the first 4G phone in the US last year. However, the results of its spending have not translated into subscribers, particularly in the face of competition from AT&T's iPhone and the addition of Verizon as an iPhone provider earlier this year.

In its latest quarter, Sprint posted a net loss of 101,000 subscribers, far higher than the 15,000 loss analysts had expected it to suffer. In contrast, AT&T added 331,000 subscribers and Verizon added 1.3 million, aided by news sales of 2.3 million iPhones.

Sprint's chief financial officer Joe Euteneuer said the company had made a "conscious decision" to spend more in the second quarter in the hope of avoiding getting "killed with market share," according to a report by Reuters.

"This was a unique quarter because of intense competition," he added.

Clear disappointment

Instead, Sprint's spending has largely just translated into higher costs for the company, driving down its operating profits margin to 16.3 percent, well below the 19 percent anticipated by Wall Street.

The company's profit margins were particularly hit by Sprint's efforts to deliver rebates to counter the Verizon launch of iPhone 4, and the low cost iPhone 3GS being promoted by AT&T.

Sprint warned that its subscriber losses would continue to get worse this quarter, but hoped to report subscriber growth for the entirety of 2011.

Analysts remained skeptical, with Bernstein analyst Craig Moffett noting, "Without post-paid subscriber growth, Sprint has little prospect of generating sustainable revenue growth, nor of generating sustainably rising margins. On those critical dimensions, Sprint's results were a clear disappointment."

Sprint has been a vociferous critic of the proposed acquisition of T-Mobile by AT&T, which would strengthen the combined carrier's ability to provide nationwide, high speed 4G LTE service, paired with an Apple iPhone capable of tapping the new network.

Combined with Verizon's emerging 4G LTE service, Sprint's own, incompatible 4G WiMAX network developed in partnership with Clear would continue to lose its luster both technically as well as being unable to support an eventual 4G LTE iPhone.