- Associated Press - Wednesday, October 27, 2010

NEW YORK (AP) - Sprint Nextel Corp. on Wednesday reported its first quarterly revenue increase in three years, as improvements in Sprint-branded and prepaid service offset the continued flight of subscribers from the Nextel network.

But its net loss widened compared with a year ago when a large tax benefit boosted results.

The Overland Park, Kan., wireless carrier, the country’s third-largest, gained a net 644,000 subscribers in the July-September period, compared to a loss of 545,000 in the same quarter last year. It ended September with 48.8 million.

Its quarterly loss amounted to $911 million, or 30 cents per share. That’s larger than its loss of $478 million, or 17 cents per share, a year earlier.

Though tax effects were the main reason for the larger loss, new subscribers meant Sprint sold more phones at a discount. Typically, a carrier subsidizes each new smart phone by hundreds of dollars, then counts on making the money back in service fees over the run of a two-year contract.

The lower operating margin appeared to spook investors, who sent Sprint shares down 35 cents, or 7.3 percent, to $4.42 in morning trading.

Revenue rose 1 percent to $8.15 billion from $8.04 billion a year ago.

Analysts surveyed by Thomson Reuters had expected a smaller loss of 28 cents per share on lower revenue of $8.04 billion.

Sprint continued to lose subscribers on contract-based plans, which are the most lucrative, because of the decline of Nextel. Its phones with walkie-talkie functions have been popular with work crews and other professionals, but the Nextel network is poorly suited to smart phones, and the core Nextel base is eroding.

Sprint compensated for the loss of contract-signing customers by adding people on “prepaid” plans, which cost less.

In recent years, Sprint made a push to use excess capacity on the Nextel network for cheap unlimited-calling plans under its Boost Mobile brand. But even that effort is flagging now, and new prepaid subscribers are being put on the Sprint network instead. The company has started talking about converting some of the Nextel spectrum over to “Sprint” use.

The burden of operating two incompatible wireless network has weighed heavily on Sprint since the 2005 acquisitions with Nextel Communications, widely hailed as one of the most disastrous deals in the telecommunications industry.

In the fourth quarter, Sprint expects to continue to gain subscribers.