(Bloomberg) -- Sprint Corp. suffered its first loss of customers in two years, complicating Chief Executive Officer Marcelo Claure's aggressive turnaround efforts ahead of an expected consolidation of the wireless industry.
Marcelo Claure
Even with offering the cheapest unlimited data plans in the U.S., Sprint lost 118,000 monthly subscribers in the fourth fiscal quarter, according to a statement Wednesday. That's far short of the 56,000 customers Sprint garnered a year earlier and the 88,000 gain that was projected by analysts.
The results underscore the difficulty Sprint faces in both adding new customers and turning a profit -- a feat that only smaller rival T-Mobile US Inc. has managed to pull off in recent quarters amid a price war that has roiled the mobile-phone industry.
The Overland Park, Kansas, company also is drowning in debt. Total debt rose to $40.9 billion from $37.3 billion a quarter ago -- and up from $33.9 billion a year earlier, the company said. Sprint had $10.9 billion in cash and cash equivalents at the end of the quarter, with $1.2 billion in loans available through equipment suppliers that can be used toward network gear.
The stock fell as much as 10 percent to $8.16 in New York Wednesday. The shares had climbed 7.7 percent this year through Tuesday.
The unexpected loss of subscribers and swelling debt load adds pressure on Sprint heading into a potentially more deal-friendly period under the Donald Trump administration. While the company's subscriber growth has improved and its debt has gotten more manageable, the company is still mired in fourth place in the U.S. wireless market, and a merger with T-Mobile US Inc. remains the most obvious way to better take on AT&T Inc. and Verizon Communications Inc. There is still enormous pressure on Sprint to make a deal, with billions of dollars of debt coming due and a network that needs investment.
Masayoshi Son, chairman of Tokyo-based SoftBank Group Corp. and Sprint's largest shareholder, considered buying T-Mobile in 2014, before abandoning the effort when officials at the U.S. Federal Communications Commission and Justice Department signaled they were against a theoretical merger.
“We've seen lots of interest from different parties to engage in talks,” Claure said on an earnings call Wednesday. “If the offer is right, if someone is willing to pay a premium, we'd consider selling. We will chose the option that maximizes shareholder value.”
But it's still early in the process. “We haven't even started to talk to all the potential partners,” Claure said.
Investors have been betting the new Trump administration will usher in a less restrictive merger environment, reopening the door to a marriage between the carriers.
“While showing improvement in operating trends is important, our thesis hinges on a T-Mobile deal,” Jonathan Chaplin, an analyst at New Street Research, wrote in a note Wednesday. “Our recent analysis of alternatives shows that this is by far the best deal for both parties, even after accounting for the quite significant regulatory risk.”
‘Spectrum Is King'
Merger talks in the wireless industry have been on hold for almost a year because of a government spectrum auction that required participants to avoid negotiating deals with each other. The gag order lifted April 27.
One bargaining chip is Sprint's vast trove of wireless spectrum, which can be used for faster 5G services. SoftBank believes the company's 2.5 gigahertz spectrum has been undervalued, Bloomberg reported, a view bolstered by the bidding war for Straight Path Communications Inc.
“People don't fully appreciate the amount of capacity we have with 2.5 gigahertz,” Claure said, noting he was in Japan last week to meet with SoftBank to talk about Sprint's options as the deal moratorium lifts.
A potential spin off of some spectrum into a separate, publicly traded company is one of a “number of things” Sprint is considering, Claure said.
“‘It doesn't mean selling spectrum,” Claure said. “In the unlimited world we live in, spectrum is king.”
SoftBank owns more than 80 percent of Sprint after acquiring the majority stake in 2013, part of Son's famed plan to build a business empire that can endure through the centuries.
To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net.
To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Paul Barbagallo, Jessica Brice
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