SPRINT REPORTS HIGHER REVENUE ON LOWER PROFIT

Sprint FON Group said its net operating revenue declined 3.6% to $3.5 billion from a year ago and was flat with the 3rd quarter but net income jumped 22.4% to $360 million. The Sprint Local Div. reported nearly flat results, with 4th- quarter operating income inching up 0.5% to $420 million and net operating revenue dipping 1% to $1.5 billion. The division’s voice revenue dropped 3.3% to $1.2 billion, as total switched access lines declined at a 2.2% annual rate, but were flat sequentially. But it said its data revenue jumped 16.7% to $196 million, as it added 40,000 DSL customers to end the year with over 304,000 lines.

For its bundling strategy, Sprint announced a marketing and sales agreement to provide EchoStar’s DISH Network satellite TV service to households served by its local phone division. The agreement, which formalized the companies’ joint effort in place since late last year, will allow Sprint to offer digital TV programming as part of its bundled packages. Sprint and EchoStar said they expected to offer a bundle of services with one bill and one point of contact within 3 months. Sprint will package DISH Network services with its Sprint Solutions and Sprint DSL bundles in 18 states where it provides local telephone service.

Analysts said the agreement reflected a general trend in the telecom industry toward bundling to keep customers and get new revenue sources. Verizon last week announced a bundling agreement with DirecTV to provide an “everything package,” including unlimited local and long distance calling, Verizon DSL and DirecTV service (CD Jan 30 p10). Teaming with DBS operators is a good way for telecom carriers lacking a video component to address competition from cable companies that offer telephony, analysts said. The company said 4th-quarter sales of Sprint Complete Sense, its bundled services, topped 280,000 following its 2nd quarter introduction. It said it ended the year with 66% of its local customers taking one or more of its products in addition to local phone service.

The Sprint Global Markets Div. said net operating revenue dropped 5.8% to $1.9 billion and voice revenue 8.4% because of product substitution and increased competition. However, it said it reversed its year-ago operating loss of $32 million to income of $32 million. Sprint said the division’s total business revenue declined 3% in the quarter and its consumer revenue was down 19%. It said its revenue declines in consumer long distance were partly mitigated by growing local service revenue from Sprint Complete Sense, which surpassed $100 million for the year.

Sprint PCS Group said its net operating revenue increased 8.4% to $3.3 billion as it added more than one million net customers in the 4th quarter but said its net loss grew 26.3% to $322 million from a year earlier. The results included a pretax charge of $352 million related to the termination of a new billing platform and severance costs as Sprint cut 2,000 jobs in the 4th quarter. It said the wireless subscriber additions included 390,000 postpaid retail, 554,000 from wholesale channels and 86,000 from affiliates. At the end of the year, the PCS Group had a total of 20.4 million customers, up 15% (more than 2.6 million) from a year ago.

The PCS Group reported a churn of 2.7% in the quarter, down from 3.5% a year ago. It said that while churn increased in Dec., following introduction of wireless local number portability (WLNP) in Nov. in its top 100 markets, the full quarter impact of WLNP on net additions was “immaterial.” However, it warned that churn could reach 3% in the first quarter. The PCS Group said the cost to acquire a new customer (CPGA) in the 4th quarter grew to $425 from $370 a year ago, affected by increased rebates used to draw customers into signing longer contracts. Sprint said more than 95% of new wireless customers chose service agreements in the quarter, and more than 80% of the new agreements were for 2 years or longer. The Group also said it had strong demand for data services in the quarter as 600,000 net new and existing customers added PCS Vision services to a total of 3.2 million. For the full quarter, data contributed 5% to overall average monthly service revenue per user, which was $62, even with the year-ago period.

Sprint Chmn. Gary Forsee said he was “pleased” with the results: “FON Group exceeded the original adjusted EPS goal for the year, and the PCS Group exceeded the adjusted EBITDA goal for the year.” He said the company’s momentum also was “evident in our growing financial strength and flexibility as we reduced net debt for the full year by $4.2 billion and significantly improved credit ratios.” Sprint said it cut its net debt by $392 million in the quarter, finishing the year with $16.7 billion in debt and $2.4 billion in cash on hand. It said it converted 20 additional switch complexes to packet technology in the quarter and 130,000 in the year.

To cut costs, Sprint reportedly will announce an outsourcing and sales and marketing agreements with IBM at its meeting with financial analysts today (Wed.) in N.Y. As part of the agreements, the company plans to move 5,000-6,000 jobs (8% of its work force) primarily in its wireless customer care operations to IBM, saving $2-$3 billion over the life of the contract, and to sell its services to large businesses served by IBM, the Wall St. Journal reported. A Sprint spokesman declined to comment on the deals, but said: “The industry as a whole is looking for ways to be as competitive as possible, and in telecommunications, there is pressure to cut costs.”