Pre-paid, wholesale subs keep Sprint afloat ahead of LTE

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Sprint announced Thursday it gained 1.1 million subscribers in the second quarter in addition to its lowest churn rates ever for both pre- and post-paid customers. That good news on the customer side was offset by another quarterly financial loss: The no. 3 carrier in the U.S. experienced a net loss of $847 million on $8.3 billion in revenues. Sprint did report higher overall average revenues per user as more consumers added 3G and 4G data plans, but it still lost money due to its mix of customers.

In a statement today, Sprint CEO Dan Hesse focused on the positives:

Sprint’s second quarter results, including our fourteenth consecutive quarter of improved customer care satisfaction, our best ever postpaid churn, more than 1 million net wireless subscriber additions and wireless service revenue growth, validate that our focus on providing simplicity, value and an unmatched customer experience is working.

Hesse’s statement is correct and factual, but unfortunately, overlooks other facts contributing to Sprint’s current challenge. Although the company gained 1.1 million net subscribers adds, net post-paid consumers declined by 101,000. That means the bulk of the new customers would be from less profitable segments. Indeed, 519,000 of the new subscribers are wholesale or affiliate customers, while 674,000 were added through pre-paid channels. That’s a problem, because ARPU on the pre-paid side actually declined slightly to $28.

Part of the issue here for the more lucrative post-paid side could be due to Sprint’s choice of 4G technologies. Sprint initially opted for a WiMAX network it opened for business in October 2008, but the speeds are getting leapfrogged by LTE and HSPA+ networks from competitors. Sprint is now turning to LightSquared’s spectrum, and bank account, to build out an LTE network. As a result of the deal, also announced today, Sprint will receive $9 billion over the next 11 years from LightSquared, and will be able to offer competitive speeds and coverage as its grand WiMAX experiment comes to an unprofitable close.

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