Sprint Posts 3Q Loss; Cuts 2002 Outlook

Sprint Corp.

Sprint and its rivals have been hurt by competition as the Baby Bells entered the long-distance market, and more customers shifted to sending e-mail rather than making telephone calls.

Data sales, once seen as a prime growth area, fell in the quarter due to price wars and spending cutbacks by corporate customers. Sprint also warned that the weak wireless subscriber growth seen during the fourth quarter would continue in 2002.

"Across the board, the long-distance industry is facing pricing pressures in data and voice. ... Long distance is just not a very good business to be on a stand alone basis," said BB&T Capital Markets analyst Rex Mitchell.

Sprint's consolidated net loss, which includes the operations of both its long-distance telephone and wireless services businesses, totaled $1.24 billion, compared with a loss of $415 million a year ago. Operating revenues rose 7 percent to $6.66 billion.

"The business for telecom is hurting. It's hurting because of the economy ... and throw on top of that the talk about pricing pressures. (Telecom companies) are like Chinese fighting fish all trying to kill each other. You put them all in a tank and they all slaughter each other," said U.S. Bancorp Piper Jaffray analyst Cary Robinson.

Before the fourth-quarter results were released, shares of Sprint closed at $16.02, down $1.20, or 6.97 percent, on the New York Stock Exchange. Shares of Sprint PCS, its wireless telephone arm, closed at $13.75, down $1.84, or 11.8 percent.

LONG-DISTANCE SALES FLOP

Sprint's main local and long-distance telephone and data business, or FON Group, reported a loss of $906 million, or $1.02 a share, compared with a profit of $97 million, or 11 cents a share, a year ago.

Excluding one-time items, the FON Group's profits were 27 cents a share, compared with 41 cents a share last year.

Without the cost to end its high-speed network project, ION, quarterly profits would have been 31 cents a share. The company in October scrapped ION (Integrated On-demand Network), which allowed customers to make phone calls, send and receive faxes and cruise the Internet over a single phone line.

Wall Street analysts expected earnings of 30 cents a share, according to research firm Thomson Financial/First Call.

Revenues for the FON Group fell 8.7 percent to $4.01 billion from $4.39 billion a year ago.

Revenues for Sprint's global markets unit sank 11.3 percent to $2.28 billion as long-distance calling rates dropped, competition rose, and customers shifted to wireless phones.

Even sales of data services dropped 13 percent in the quarter. Sprint and other telephone companies have bet on data services as a source of future growth, but sales were hurt by price wars and restrained spending by business customers.

During the fourth quarter, local telephone revenues rose a scant 1 percent to $1.58 billion.

"I think the long-distance part of Sprint is performing worse than its peers. But their peers don't have the local division to buoy them up so that's where I think Sprint is better off than WorldCom and AT&T," Mitchell said.

"I think (Sprint) could survive if it pared back its long distance plans significantly, and continued its transition to be a long-distance company behind its PCS and behind its local division," Mitchell said.

Sprint said it expects the FON Group's 2002 earnings, excluding losses related to a high-speed network project, to "approach" $1.40 a share. In December, the company had forecast earnings in the range of $1.40 a share to $1.50 a share.

Analysts said they expect Sprint, which last year cut 6,000 jobs, or 7 percent of its work force, to cut additional jobs in 2002 as it tries to offset the decline in sales.

SPRINT PCS' 2002 SUBSCRIBER GROWTH TO FALL SHORT

Sprint PCS had a loss of $328 million, or 33 cents a share, compared with a loss of $512 million, or 53 cents a share, a year ago. Revenues jumped 42 percent to $2.76 billion from $1.94 billion in the year-ago quarter.

Sprint PCS added 1.11 million direct subscribers, fewer than the 1.3 million analysts were expecting, due to weaker-than-normal holiday sales.

Following the industry's weak subscriber growth in the fourth quarter, Sprint PCS cut its growth forecast for 2002 to about 3 million new customers from earlier forecasts of 3.6 million to 3.7 million.

Analysts said they were more concerned about Sprint PCS's customer turnover, or churn, than overall subscriber growth. In the fourth quarter, churn rose to 3 percent from 2.8 percent a year ago. The company expects the rate to rise to about 3.1 percent to 3.2 percent in the first quarter, analysts said.

"eople can accept slower subscriber growth due to economy, but what they can't get past is higher churn,"said Guzman and Co. analyst Patrick Comack.

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