Here’s Why Sprint is Playing Catch-Up

After posting gains on Friday, shares of Sprint Nextel (NYSE:S) settled back down 1%. On Thursday, the company reported third quarter 2012 earnings per share of -$0.26, less than expected losses around $0.40 per share. Wireless service revenue grew 14 percent year-over-year, the eighth consecutive quarter of double-digit year-over-year growth.

Total revenue was in line with expectations at $8.76 billion. Sprint sold about 1.5 million Apple (NASDAQ:AAPL) iPhones, flat with last quarter, with 40 percent of them going to new customers. However, Sprint Nextel — mostly the Nextel part — saw an overall loss of about 423,000 subscribers between July and September.

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Sprint’s turn-around plan, fueled by a liquidity injection from Softbank, which now owns 70 percent of the company, is slated to put the company in the green by 2014. Meanwhile, Verizon Wireless (NYSE:VZ) added 1.8 million subscribers, and continues to throw its weight around as the nation’s largest carrier.

AT&T (NYSE:T) posted more moderate subscriber growth at 228,000 for the quarter.

Smartphone adoption leads to more data consumption, which means more revenue for carriers. But Sprint Nextel is a little handicapped in that arena — again, mostly by Nextel. The Nextel network doesn’t support the level of data consumption that smartphones require. Upgrading the Nextel network and pushing the smartphone transition will be critical for future success, but it will mean hemorrhaging subscribers.

Sprint is playing catch-up while Verizon reaches critical mass. The larger its network, the more attractive it becomes — monopolistic fears have already been raised. The company’s network and subscriber base is so large that it doesn’t need to cooperate with some smaller carriers. Local operators can only survive if they have access to larger networks. Verizon’s size means that it can deny this access, and effectively force subscribers to come over to the dark side.

A network in the middle of a turn-around plan clearly seems less appealing than a network in full swing. Sprint has laid out its plan and is moving ahead steadily, but its subscriber base could very well shrink further before growing.

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