Sprint Sees the Light at the End of the Tunnel

Sprint (s s) today announced a net gain of subscribers in the most recent quarter for the first time in three years. It posted a record low postpaid churn, bringing the carrier’s total customer base to 48.2 million subscribers. Sprint says overall postpaid additions are up 46 percent year-over-year, which is the most since 2001. But the real strength is in Sprint’s wholesale and prepaid segments, which are buying time for Sprint’s postpaid business and making Sprint’s 2009 purchase of Virgin Mobile look like a strategic win.

Sprint gained a net of 111,000 subscribers in the quarter thanks to 166,000 new wholesale and 173,000 net new prepaid customers, but its postpaid user base declined by 228,000. This mix of business models is helping Sprint on the subscriber side, but it may not be helping its bottom line. Average revenue per user for prepaid customers declined by 18 percent from the same period the year before to $28. Postpaid ARPU also declined, and Sprint reported a net loss of $760 million — almost double what it was in the same period one year before.

While non-postpaid activities are more than offsetting the postpaid loss in subscribers as Sprint tries to woo new and current customers with new handsets and features such as the HTC EVO 4G, the smartphones themselves pose a double-edged sword because the subsidies on them are higher. Wireless equipment subsidies were $1 billion for the quarter up from $850 million during the same period last year. Sprint said in its release:

The year-over-year increase in subsidy is a combination of an increase in postpaid handsets sold with a greater mix of smartphones, which on average carry a higher subsidy rate, and an increase in the number of prepaid handsets sold primarily as a result of the acquisition of Virgin Mobile.

Despite record sales, the EVO certainly doesn’t account for major subscriber gains on the postpaid side, but the unique handset could have helped reduce postpaid churn, which Sprint reports at 1.85 percent, an all-time low. By offering a hot smartphone paired with Sprint’s WiMAX service, the carrier has a product that competitors simply don’t have right now. Such a product may have even pulled in some new subscribers, as Sprint reports postpaid number port-ins up 84 percent from the same quarter last year. The key is whether or not Sprint can balance its success with hotter handsets and prepaid customers that spend less and still make a profit.

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