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Sprint Nextel (S)
Sprint Sees Promise in Prepaid Market
The Sprint Nextel Corporation (S: Charts, News, Offers) announced that it posted a net loss of $384 million for the quarter. Sprint's quarterly performance is worse than last year's $344 million net loss. The telecommunications tycoon also saw its revenue fall 10 percent to $8.14 billion from $9.06 billion a year ago. Although, CEO Dan Hesse is confident that Sprint is on the right track despite the recent losses. What is the cause of Sprint's recent slip in performance? How does Dan Hesse and Sprint intend to turn things around?
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Sprint's Achilles heel is its customer retention rate of contract subscribers. The third-largest U.S. mobile-phone company watched 991,000 contract customers walk away from its service this quarter. Although this is an improvement from last quarter's 1.25 million subscriber loss, it is still much steeper than the 760,000 user drop off Sprint suffered in last year's second quarter. However, Sprint Nextel experienced significant growth in its Boost Mobile prepaid service, as it added 938,000 customers.
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It seems that Sprint's prepaid service offering is the focal point of Dan Hesse's recovery plan. In an attempt to expand on its prepaid market share, Sprint Nextel has decided to buy out Virgin Mobile USA for a reported $420 million. Sprint appears confident that the deal is a move in the direction despite prepaid customers' "no long-term" contract commitment and tendency to generate less revenue. Sprint is hoping that it can balance out its declining contract customer base by expanding on its prepaid service model success. In addition, Nextel is relying on the release of its Palm Pre (its new, touchscreen smart-phone) to be the company's iPhone killer and attract more contract-based customers. Check out the head to head video review here. The combination of its prepaid service expansion and new Palm Pre offering appear to be Sprint's platform for a performance turnaround.
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Sprint Nextel has hit a rough patch these past two quarters. However, the telecommunications titan seems to have formulated a gameplan that could potentially pose it for a comeback. Sprint is dedicated to expanding its prepaid service offering and is working hard to capitalize on the market's growing popularity. In addition, Sprint Nextel is optimistic about the Palm Pre's ability to compete against the Apple iPhone and other rival smart phones. Although these are all steps in the right direction, Sprint still has a long way to go before its return to the glory days. Only time will tell if Sprint has dialed the right number for a performance comeback.
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