Tuesday, October 17, 2006

Sprint Nextel Corp., the country’s third-largest wireless carrier, might be a household name, but Wall Street analysts say the company needs to do a better job of setting itself apart from competitors.

The Reston telecommunications company, which plans to release third-quarter earnings Oct. 26, has had trouble adding subscribers since Sprint Corp. bought Nextel Communications Inc. last year in a $36 billion deal.

The company added 708,000 retail subscribers in the second quarter, compared with industry leaders Verizon Wireless at 1.8 million and Cingular Wireless at 1.5 million. Analysts attribute Sprint Nextel’s lackluster performance to factors stemming from the acquisition.

“The weakness in the Nextel business is probably the primary reason,” said Christopher King, an analyst at Stifel, Nicolaus & Co., who has a “hold” rating on the company. Stifel has a business relationship with Sprint Nextel.

Service disruptions during the “rebanding” process likely have created a bad impression of network reliability, Mr. King said. The Federal Communications Commission ordered the rebanding, or reallocation of frequencies, on the 800 MHz spectrum between cellular users and public safety agencies. Nextel’s “push-to-talk” devices operate on this spectrum.

Another problem: “They just don’t have competitive handsets” like the Razr, he said.

Motorola Inc.’s Razr has been available only to Verizon subscribers, but Sprint announced earlier this month that it plans to debut the wildly popular phone by November.

Perhaps most troubling, Mr. King said, is that the company has failed to settle on a clear, successful marketing campaign.

“Their marketing effort has been spotty at best,” he said. “They’re running two different technologies under two different brand names.”

Verizon has chosen network reliability as its differentiator, and Cingular has laid claim to having the fewest dropped calls. “Sprint doesn’t really have anything that they can hang their hat on from a marketing standpoint — yet,” Mr. King said.

The “Power Up” marketing campaign that debuted this summer emphasizes Sprint Nextel’s status as the largest mobile broadband network. Analysts say it is too early to tell whether the campaign will resonate with consumers.

Mr. King estimates third-quarter earnings per share of 34 cents, a 48 percent improvement over 23 cents in 2005, when earnings were hampered by hurricane costs and merger expenses.

Thomas Watts, an analyst with Cowen and Co. who has a favorable rating on the stock, said the company is taking steps toward long-term growth.

“The company has put in place a program that, in ‘07, should enable them to increase their margins and reduce churn,” said Mr. Watts.

Mr. Watts noted that the company’s second-quarter earnings call included a refocus on target markets, such as Nextel business subscribers, and revitalization of the company’s service and distribution network.

Shares of Sprint Nextel closed down 32 cents at $17.47 on the New York Stock Exchange yesterday.

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