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Sprint Nextel Posts Larger $29.5B Loss

DAVID TWIDDY   02/28/08 05:45 PM ET   AP

Sprint Nextel

KANSAS CITY, Mo. — Sprint Nextel Corp. showed more signs Thursday that its recovery will be long and painful as it recorded a massive fourth-quarter loss, predicted continued customer weakness and pulled the plug on paying dividends.

The nation's third-largest wireless carrier also unveiled a $99.99 unlimited calling and data services plan that establishes a new target in a burgeoning wireless price war but warned that even that wasn't the "silver bullet" needed to cure its ills.

"Our business is not performing well right now," Chief Executive Officer Dan Hesse told analysts during a conference call. "We are working aggressively to turn this around but our financial performance will not improve overnight."

Blaming instability in the credit markets, Sprint Nextel said that it was not declaring dividends for the "foreseeable future" and was borrowing $2.5 billion from a revolving credit facility to improve the company's "financial flexibility." It said it still had $500 million in the credit facility.

Company shares closed down 86 cents, or 9.6 percent, at $8.09 Thursday after touching a new 52-week low of $7.75 earlier in the session. The stock was steady in after-hours trading.

Sprint Nextel, based in Overland Park, Kan., said it lost $29.5 billion, or $10.36 per share, during the quarter ending Dec. 31. By comparison, the company earned $261 million, or 9 cents per share, during the same period a year ago.

The company said last month it would likely have to write off most of the remaining $30.7 billion in non-cash goodwill value from the acquisition of Nextel and a number of affiliates. Sprint Nextel has struggled since the purchase, plagued by technical problems, unfocused marketing and a difficulty in merging the two companies' work forces into a cohesive whole.

The hurdles have caused the company to fall far behind rivals AT&T and Verizon Wireless in attracting and retaining customers.

Not including the write-down and other one-time charges, the company said it would have earned 21 cents per share, which was higher than the 18 cents per share expected by analysts surveyed by Thomson Financial, based on the same criteria.

Revenue during the quarter slipped 6 percent to $9.8 billion from $10.4 billion a year earlier, just missing analysts' expectations of $9.9 billion.

The company reported a net loss of 108,000 subscribers for the quarter as an increase in customers through its Boost prepaid brand and wholesale channels partially offset the loss of 683,000 postpaid subscribers, who typically spend more on data services like texting and Web surfing.

Looking ahead, the company said it expected to lose 1.2 million more postpaid customers in the first quarter of 2008 and a similar amount in the second quarter.

Sprint Nextel reported quarterly postpaid churn, or the measure of monthly customers dropping service, remained level at 2.3 percent and the average revenue per user declined about 4 percent from a year ago to $58.

Sprint Nextel said overall wireless revenues declined about 6 percent to $8.5 billion.

Hesse told analysts that the company would continue focusing on improving customer service and making its price plans and services easier for customers to understand.

"When I look at the company I see great assets. ... I also see a once-strong brand which lacks relevance and a clear message," he said. "This will change."

Among those changes is the "Simply Everything" plan, which would charge $99.99 for unlimited voice, texting and Web surfing as well as offerings for which customers typically have paid a premium, such as video and navigational services. A separate plan for unlimited voice calls only would cost $89.99.

Verizon, AT&T and T-Mobile last week offered plans charging $99.99 for unlimited voice calls. T-Mobile's plan includes unlimited text and picture messaging while unlimited data services cost extra for Verizon and AT&T customers.

Hesse said the new plans are intended to increase usage of data services and help the company regain some of the dominance it once had in the data market _ not just undercut its competitors on price.

"We're really setting the stage for differentiating the company around our greatest strength going forward," he said.

He also warned that the unlimited plan was only one piece of the puzzle to reviving the company.

"Will this offer be enough to move the needle around the kinds of large subscriber numbers that we were talking about earlier? The answer is no (but) it begins to make a difference, it begins to establish who we are," he said.

While Raymond James analyst Rick Prentiss congratulated Hesse during the conference call, saying "this is the plan we were looking for," other analyst were less impressed.

"We view today's Sprint action as a 'Hail Mary,' leaving price as the only warhead left in the arsenal," Bear Stearns analyst Mike McCormack said in a research note. "While we will be watching for share shift, we do not think pricing alone will drive subscribers to Sprint."

Hesse, who replaced ousted CEO Gary Forsee, already announced last month that the company would lay off about 4,000 employees, or 6.7 percent of its work force, and close 125 retail locations. Earlier this month, he moved the company's corporate headquarters from Reston, Va., back to Kansas, which he said should improve efficiency and management oversight.

The company's shares have fallen more than 51 percent in value in the past year.

For the year, the company said it lost $29.6 billion, or $10.31 per share, compared with a profit of $1.3 billion, or 45 cents per share, in 2006.

Not including the goodwill write-down, the company said it earned 88 cents per share compared with $1.18 a year ago.

Annual revenue declined 2 percent to $40.15 billion.

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Filed by Michelle Kung  |