Nextel write-down punches hole in Sprint’s profits

29 Feb 2008

Sprint Nextel, the third largest wireless operator in the US by subscribers, has reported losses of USD29.5 billion for its fiscal fourth-quarter ending 31 December, after it decided to write down most of the value of its Nextel Communications acquisition in 2006. In a filing with the Securities and Exchange Commission (SEC) on 1 February this year, Sprint Nextel said the write off could include virtually all of the USD30.7 billion the company keeps on its books. The actual write-down has wiped four-fifths off the value of Nextel at the time it was acquired – the fifth-largest loss among Standard & Poor’s 500 Index companies since 1990, writes Bloomberg. Sprint’s Q4 2007 revenues fell 5.7% year-on-year to USD9.85 billion, missing analysts’ estimates, and the carrier also borrowed USD2.5 billion under a credit line.

Sprint says it expects to lose a net 1.2 million subscribers in the current quarter, roughly the same amount as it lost during the whole of 2007. Subscriber losses have been prompted by poor service quality and dropped calls which have reportedly ballooned since the Nextel purchase. If the operator’s gloomy prediction proves well-founded, Sprint will have lost 5.9% of its contract subscriber base by 30 June. The group’s new chief executive officer Dan Hesse confirmed that business was deteriorating. Sprint, whose shares have fallen to their lowest level since October 2002, is expecting a rocky time ahead. ‘We will have a difficult 2008 as we turn this ship around,’ Hesse said, adding ‘This turnaround will not happen for many quarters’. To staunch the exodus of disgruntled customers Hesse has announced a series of initiatives including a new unlimited calling plan costing USD89.99 per month, including SMS and push-to-talk (PTT) capabilities. Sprint is also selling a USD99.99 version with web access, television and music.

United States, Sprint Corporation (now part of T-Mobile US)