Sprint Nextel Reports Third Quarter 2009 Results

Sprint Nextel Corp. (NYSE: S) today reported third quarter 2009 financial results that included consolidated net operating revenues of $8.0 billion, a net loss of $478 million and a diluted loss per share of 17 cents. The company generated Free Cash Flow* of $664 million in the quarter and $2.1 billion year-to-date in 2009. As of September 30, 2009, the company had $5.9 billion in cash, cash equivalents and short-term investments and $1.6 billion in borrowing capacity available under its revolving bank credit facility, for total liquidity of $7.5 billion.

Sprint lost a total of 135,000 net retail subscribers in the quarter. The company’s year-over-year post-paid gross addition improvement was the best in Sprint Nextel history, and the sequential improvement was the best in more than five years. Net post-paid subscriber losses have improved by approximately 20 percent in each of the second and third quarters of 2009.

"Sprint achieved its best net retail subscriber results in more than two years and improvement in both post-paid and prepaid gross subscriber additions in the third quarter,” said Dan Hesse, Sprint Nextel CEO. "Sprint is beginning to attract more customers with the industry’s best device line-up and the clarity and simplicity of our offers, seven sequential quarters of improvement in customer care satisfaction, a network declared to be most reliable by PC World magazine, and recognition from Newsweek magazine which ranked Sprint 15^th of 500 companies on its 2009 Green Ratings list -- the only telecom company in the Top 100.

"The company again generated strong cash flow, and while Operating Income Before Depreciation and Amortization* (OIBDA) was impacted by costs associated with growth in customer additions, previous quarters’ subscriber losses and certain seasonal costs in the quarter, Sprint continues to manage costs rigorously. We expect to see sequential quarterly improvement in both post-paid and total net subscriber losses in the fourth quarter of 2009,” Hesse said.

In 2009 Sprint has launched or announced 16 new touch, QWERTY and smart devices with a full selection of operating systems. They include Palm^® Pre™ and Palm^® Pixi™, Blackberry^® Tour™; HTC Hero™ and Samsung Moment™ -- which are both based on Google’s Android™ platform; HTC Touch Pro 2, Samsung Instinct^® HD, and Samsung Intrepid^TM, which offers the new Windows Mobile^® 6.5 Professional operating system. In addition, Sprint launched the nation’s first full-featured, eco-friendly phone, Samsung Reclaim™ which earlier this month was given the "Hottest in Show” award at the CTIA Convention in San Diego.

Additionally, Sprint 4G is now available in 17 markets, including Philadelphia, PA, which launched earlier this week. Sprint 4G coverage should serve a population of more than 30 million people by the end of 2009, and cover a population of up to 120 million people in about 80 markets by the end of 2010. Sprint 4G service is planned for deployment in these additional markets in 2009: Austin, TX; Charlotte, NC; Chicago, IL; Dallas/Ft. Worth, TX; Greensboro, NC; Honolulu, HI; Maui, HI; Raleigh, NC; San Antonio, TX; and Seattle, WA.

CONSOLIDATED RESULTS

• Consolidated net operating revenues of $8.0 billion for the quarter were 9% lower than in the third quarter of 2008 and 1% lower than the second quarter of 2009. The year-over-year decline is primarily due to lower contribution from post-paid wireless service revenues as well as wireline voice and legacy data revenues, partially offset by an increase in prepaid wireless service and equipment revenues.
• Adjusted OIBDA* was $1.5 billion for the quarter, compared to $1.8 billion for both the third quarter of 2008 and the second quarter of 2009. The year-over-year decline in Adjusted OIBDA* was due to revenue declines as a result of fewer post-paid subscribers, partially offset by lower SG&A expenses. Sequentially, Adjusted OIBDA* decreased as the decline in operating revenue, seasonally higher cost of service, and increased subsidy expenses offset continued reductions in SG&A expenses.
• Capital expenditures were $431 million in the quarter, compared to $485 million in the third quarter of 2008 and $321 million in the second quarter of 2009.
• Free Cash Flow* was $664 million for the quarter, compared to $1.1 billion for the third quarter of 2008 and $676 million for the second quarter of 2009. In the quarter, the company made a $200 million cash contribution to its defined benefit pension plan. Without this payment, Free Cash Flow would have been $864 million in the quarter.
• In August, the company issued $1.3 billion in principal of senior notes due in 2017 for general corporate purposes. In September, all outstanding 5.25% convertible senior notes due in 2010 were redeemed at 100% of the principal amount, totaling $607 million plus accrued and unpaid interest.

WIRELESS RESULTS

Wireless Customers

• The company served 48.3 million customers at the end of the third quarter of 2009, compared to 48.8 million at the end of the second quarter of 2009. This includes 33.6 million post-paid subscribers (25.0 million on CDMA, 7.8 million on iDEN, and 870,000 Power Source users who utilize both networks), 5.7 million prepaid subscribers (5.2 million on iDEN and 500,000 on CDMA) and 8.9 million wholesale and affiliate subscribers, all of whom utilize our CDMA network.
• For the quarter, net retail subscribers declined by a total of 135,000 and net wireless customers declined by approximately 545,000, including net losses of 801,000 post-paid customers – comprising 271,000 CDMA and 530,000 iDEN customers (including a net 64,000 customers who transferred from the iDEN network to the CDMA network). The company gained a net 801,000 prepaid iDEN customers, offset by net losses of 135,000 prepaid CDMA customers. The company also experienced a net loss of 410,000 wholesale and affiliate subscribers as a result of subscriber losses from our mobile virtual network operators and deactivation of open machine-to-machine devices that had been activated in the second quarter but may not be utilized.
• The credit quality of our post-paid customers reached the company’s highest historical level of almost 85% prime and improved year-over-year from 83% at the end of the third quarter of 2008.
• More than 9% of post-paid customers upgraded their handsets during the third quarter, a slight increase sequentially, resulting in increased contract renewals.
• During the third quarter, the company added to its device line-up with the Blackberry^® Tour™, Samsung Reclaim™, HTC Touch Pro 2 and Samsung Instinct^® HD. In addition, Sprint launched HTC Hero™, Samsung Intrepid and Motorola Debut™ in October, with Samsung Moment™ and Palm^® Pixi™ also planned for availability before the holidays.

Wireless Churn

• Post-paid churn in the quarter was 2.17% compared to 2.15% in the year-ago period and 2.05% in the second quarter of 2009. The sequential increase is due to seasonality and heightened competition.
• Prepaid churn in the third quarter of 2009 was 6.65%, compared to 8.16% in the year-ago period and 6.38% in the second quarter of 2009. The year-over-year improvement in churn is due to increased subscriber additions related to our national Boost Monthly Unlimited offering. The sequential increase in prepaid churn is related to seasonality and the significant growth of the Boost Monthly Unlimited customer base during the second quarter.

Wireless Service Revenues

• Wireless service revenues for the quarter of $6.3 billion declined 8% year-over-year and 2% sequentially. The year-over-year and sequential decline is due to fewer post-paid subscribers, partially offset by more prepaid subscribers.
• Wireless post-paid ARPU has been stable for the past seven quarters at approximately $56, primarily due to continued growth in fixed-rate bundled plans such as Simply Everything, offset by declines in usage and roaming. As a result of the company’s focus on improving the customer experience and seven consecutive quarters of improvement in customer care satisfaction, post-paid ARPU benefited from reduced credits to customer bills year-over-year.
• Data revenues contributed more than $16.25 to overall post-paid ARPU in the third quarter, led by growth in CDMA data ARPU. CDMA data ARPU increased to greater than $19, an industry-best that now represents 34% of total CDMA ARPU.
• Prepaid ARPU in the quarter was approximately $35 compared to $31 in the year-ago period and $34 in the second quarter of 2009. The year-over-year and sequential increases reflect a growing contribution from prepaid subscribers on unlimited plans.
• Wholesale, affiliate and other revenues were down 41% compared to the year-ago period and flat sequentially. The year-over-year decline is primarily due to subscriber losses from one of our large carrier customers.

Wireless Operating Expenses and Adjusted OIBDA*

• Total operating expenses were $7.4 billion in the third quarter, compared to $7.8 billion in the year-ago period and $7.3 billion in the second quarter of 2009.
• Adjusted OIBDA* of $1.2 billion in the third quarter of 2009 compares to $1.6 billion in the third quarter of 2008 and $1.4 billion in the second quarter of 2009. The year-over-year decline in Adjusted OIBDA* was primarily due to fewer post-paid subscribers, partially offset by more prepaid subscribers and an improvement of $340 million in SG&A expenses. Sequentially, Adjusted OIBDA* declined almost $230 million as the decline in service revenue, seasonally higher cost of service, and increased subsidy expenses associated with higher customer additions, offset continued reductions in SG&A expenses.
• Equipment subsidy was approximately $950 million (equipment revenue of approximately $530 million, less cost of products of $1.48 billion) as compared to about $700 million in the year-ago period and almost $850 million in the second quarter of 2009. The year-over-year increase in subsidy is a combination of a greater mix of post-paid handsets sold with higher-functionality, an increase in the number of prepaid handsets shipped as a result of the national Boost Monthly Unlimited offering and a decrease in average post-paid revenue per handset sold. The sequential increase in subsidy is primarily due to the increase in the number of handsets sold and the increase in average cost per handset sold as the company continues to sell a greater number of higher-functionality handsets.
• SG&A expenses declined 14% year-over-year from the third quarter of 2008, and declined 2% sequentially from the second quarter of 2009. The year-over-year improvement is due to lower customer care, bad debt, and labor expenses. On a sequential basis, the decline reflects lower labor and customer care expenses partially offset by an increase in bad debt expenses.

Wireless Capital Spending

Wireless capital expenditures were $310 million in the third quarter of 2009, compared to $217 million spent in the third quarter of 2008 and $227 million in the second quarter of 2009. The company continues to invest capital in the quality and performance of its networks. At the end of the third quarter of 2009, Sprint’s networks continue to operate at best-ever levels and, according to third-party data, Sprint has the most dependable⁺ 3G network in the country.

WIRELINE RESULTS

• Wireline revenues of $1.4 billion for the quarter declined 10% year-over-year as voice and data declines more than offset Internet revenue growth, and were 1% lower sequentially.
• Internet revenues for the third quarter of 2009 increased 5% from the year-ago period and were flat sequentially. The year-over-year increase reflects strong enterprise demand for Global MPLS services and the increased base of cable subscribers who utilize our VoIP services. In the quarter, Sprint received a 2009 Business Connectivity Carrier Excellence Award for Customer Service (ILEC/IXC) (tied with another carrier in this category) from ATLANTIC-ACM, the third award this year from the research company. The award marks Sprint’s leadership in providing quality customer service for business customers using IP-based and converged solutions.
• Internet revenues as a percent of wireline revenues have increased to 41% in the third quarter of 2009 from 35% in the third quarter of 2008. At the end of the third quarter of 2009, the company supported approximately 4.9 million users of cable partner VoIP services. These services are currently available to almost 31 million households served by cable companies.
• Voice revenues for the quarter declined 14% year-over-year and were flat sequentially.
• Data revenues are impacted in part by customer transitions to IP services. These legacy services declined 35% compared to the third quarter of 2008 and 12% sequentially.
• Adjusted OIBDA* was $324 million compared to $263 million in the third quarter of 2008 and $352 million reported for the second quarter of 2009. Total operating expenses were $1.2 billion in the third quarter of 2009. Year-over-year, total operating expenses improved 16% due to the declines in costs of service and improvement in SG&A expenses, and were flat sequentially as higher cost of service was offset by continued improvement in labor expenses.
• Wireline capital expenditures were $72 million in the third quarter of 2009, compared to $81 million in the third quarter of 2008 and $47 million in the second quarter of 2009. The company made significant capital investments in prior years to build out its IP network, and less capital was required year-over-year as the pace of our IP growth rate has slowed.

Forecast

Sprint Nextel continues to expect that both post-paid and total subscriber full-year losses should improve in 2009 as compared to 2008. The company also expects both post-paid and total subscriber net losses to improve sequentially from 3Q to 4Q of 2009. In addition, Sprint Nextel expects that full-year capital expenditures in 2009 will be less than $1.7 billion. The company expects to continue to generate positive Free Cash Flow* during the fourth quarter of 2009.

*FINANCIAL MEASURES

Sprint Nextel provides financial measures determined in accordance with accounting principles generally accepted in the United States (GAAP) and adjusted GAAP (non-GAAP). The non-GAAP financial measures reflect industry conventions, or standard measures of liquidity, profitability or performance commonly used by the investment community for comparability purposes. These measurements should be considered in addition to, but not as a substitute for, financial information prepared in accordance with GAAP. We have defined below each of the non-GAAP measures we use, but these measures may not be synonymous to similar measurement terms used by other companies.

Sprint Nextel provides reconciliations of these non-GAAP measures in its financial reporting. Because Sprint Nextel does not predict special items that might occur in the future, and our forecasts are developed at a level of detail different than that used to prepare GAAP-based financial measures, Sprint Nextel does not provide reconciliations to GAAP of its forward-looking financial measures.

The measures used in this release include the following:

OIBDA is operating income/(loss) before depreciation, amortization, asset impairments and abandonments. Adjusted OIBDA is OIBDA excluding severance, exit costs, and other special items. Adjusted OIBDA Margin represents Adjusted OIBDA divided by non-equipment net operating revenues adjusted for certain non-recurring revenue adjustments for Wireless and Adjusted OIBDA divided by net operating revenues for Wireline. We believe that Adjusted OIBDA and Adjusted OIBDA Margin provide useful information to investors because they are an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, spectrum acquisitions and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under GAAP, these expenses primarily represent non-cash current period costs associated with the use of long-lived tangible and intangible assets. Adjusted OIBDA and Adjusted OIBDA Margin are calculations commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the telecommunications industry.

Free Cash Flow is the cash provided by operating activities less the cash used in investing activities other than short-term investments during the period. Free cash flow results in the change in cash, cash equivalents and short-term investments less the change in debt and proceeds from other financing activities, net. We believe that Free Cash Flow provides useful information to investors, analysts and our management about the cash generated by our core operations after interest and dividends and our ability to fund scheduled debt maturities and other financing activities, including discretionary refinancing and retirement of debt and purchase or sale of investments.

Net Debt is consolidated debt, including current maturities, less cash and cash equivalents, short-term investments and restricted cash. We believe that Net Debt provides useful information to investors, analysts and credit rating agencies about the capacity of the company to reduce the debt load and improve its capital structure.

SAFE HARBOR

This news release includes "forward-looking statements” within the meaning of the securities laws. The statements in this news release regarding the business outlook, expected performance and forward-looking guidance, as well as other statements that are not historical facts, are forward-looking statements. The words "estimate," "project," "forecast," "intend," "expect," "believe," "target," "providing guidance" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are estimates and projections reflecting management's judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, customer and network usage, customer growth and retention, pricing, operating costs, the timing of various events and the economic and regulatory environment.

Future performance cannot be assured. Actual results may differ materially from those in forward-looking statements. Some factors that could cause actual results to differ include:

• our ability to attract and retain subscribers;
• the effects of vigorous competition on a highly penetrated market, including the impact of competition on the price we are able to charge subscribers for services and equipment we provide and our ability to attract new subscribers and retain existing subscribers; the overall demand for our service offerings, including the impact of decisions of new subscribers between our post-paid and prepaid services offerings and between our two network platforms; and the impact of new, emerging and competing technologies on our business;
• the effect of limiting capital and operating expenditures on our ability to improve and enhance our networks and service offerings, implement our business strategies and provide competitive new technologies;
• volatility in the trading price of our common stock, current economic conditions and our ability to access capital;
• the impact of third parties not meeting our business requirements, including a significant adverse change in the ability or willingness of such parties to provide handset devices or infrastructure equipment for our CDMA network, or Motorola, Inc.’s ability or willingness to provide related handset devices, infrastructure equipment and software applications, or to develop new technologies or features, for our iDEN network;
• the costs and business risks associated with providing new services and entering new geographic markets;
• the financial performance of Clearwire and its deployment of a WiMAX network;
• the effects of mergers and consolidations and new entrants in the communications industry and unexpected announcements or developments from others in the communications industry;
• unexpected results of litigation filed against us or our suppliers or vendors;
• the impact of adverse network performance;
• the costs and/or potential customer impacts of compliance with regulatory mandates;
• equipment failure, natural disasters, terrorist acts, or other breaches of network or information technology security;
• one or more of the markets in which we compete being impacted by changes in political, economic or other factors such as monetary policy, legal and regulatory changes or other external sociological factors over which we have no control; and
• other risks referenced from time to time in this report and other filings of ours with the Securities and Exchange Commission, including in Part I, Item IA "Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2008 and risk factors included in our subsequent reports on Form 10-Q.

Sprint Nextel believes these forward-looking statements are reasonable; however, you should not place undue reliance on forward-looking statements, which are based on current expectations and speak only as of the date of this release. Sprint Nextel is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this release.

⁺ "Dependable” based on independent third-party drive tests for 3G data connection success, session reliability and signal strength for the top 50 most populous markets, January 2008 to July 2009. Not all services available on 3G and coverage may default to separate network when 3G unavailable.

ABOUT SPRINT NEXTEL

Sprint Nextel offers a comprehensive range of wireless and wireline communications services bringing the freedom of mobility to consumers, businesses and government users. Sprint Nextel is widely recognized for developing, engineering and deploying innovative technologies, including two wireless networks serving more than 48 million customers at the end of the third quarter of 2009 and the first and only 4G service from a national carrier in the United States; industry-leading mobile data services; instant national and international walkie-talkie capabilities; and a global Tier 1 Internet backbone. The company’s customer-focused strategy has led to improved first call resolution and customer care satisfaction scores. For more information, visit www.sprint.com.