Sprint Nextel Corp. (S) maintained sales levels for the popular Apple Inc. (AAPL) iPhone in the second quarter, in contrast to its rivals, giving support that the company's turnaround is continuing and raising optimism for when a new version of the smartphone arrives, expected later this year.
Overall, the Overland Park, Kan., wireless carrier second-quarter loss widened amid customer losses and costs from the shuttering of its older Nextel network, but its crucial network overhaul is on track, something that will be important because the new iPhone will likely utilize next-generation network technology.
Sprint began selling the iPhone in October by cutting a large multiyear purchase agreement that was viewed as extreme by some, but the company provided assurances Thursday that it would ultimately benefit from the deal.
"We're ahead of pace for what it would take to retire that $15.5 billion four-year commitment," Chief Executive Dan Hesse said in an interview. "Right now, the iPhone decision is looking like a very good one."
Shares jumped 16% to $3.90 as Wall Street was caught off guard by the better-than-expected performance. The frequently volatile stock is down 25% over past 12 months but up 66% for 2012.
After spending years juggling multiple wireless technologies, Sprint is streamlining and upgrading its network in order to draw new customers and keep pace with larger rivals that have a head start to rolling out faster service.
Sprint's next-generation LTE, or Long Term Evolution, network is now running in 15 cities and should cover 100 million potential customers by year-end, but it is still well behind AT&T Inc. (T) and Verizon Wireless in the technology rollout. The network upgrade is expected to be largely completed by mid-2013.
The next iteration of the iPhone--expected in the fall--is widely expected to run on the LTE network, but Mr. Hesse downplayed any concern that Sprint's network will be lacking when compared to rivals. In an interview, he said the phone would still perform well and some of the company's best selling devices were LTE-compatible before the network rollout.
Regardless, Sprint has differentiated itself by being the only major carrier to still offer unlimited data packages with no limits to customers on its network, and Mr. Hesse said there are no plans to change that strategy. AT&T and Verizon Wireless recently unveiled wireless data plans that capitalize on data consuming phones and device.
In the quarter, iPhone unit sales at Verizon Wireless and AT&T dropped 16% and 14%, respectively, from last quarter, while Sprint held unchanged at 1.5 million. Notably, Sprint said 40% of iPhone sales were new customers, compared to 25% at Verizon and 22% at AT&T.
While Sprint still doesn't expect to make a profit on the iPhone deal until 2015, Mr. Hesse said the device will help Sprint's business more than other high-end smartphones, because of lower product returns and overall support costs. He expects iPhone users will have a lower tendency to cancel their service and other subscribers are less likely to jump to another carrier just to get an iPhone.
Sprint also opened a new sales channel last month when it began offering a pay-as-you-go iPhone through its Virgin Mobile USA business, allowing users to pay a higher price for the phone in exchange for cheaper service and without a two-year contract.
"We have sold quite a few devices, but it is just too early to make forecasts," Mr. Hesse said of the strategy. Sprint is working with Apple to begin advertising the pre-paid iPhone.
Overall, Sprint's second-quarter results were mixed because of the network transition, but the company impressed Wall Street with its ability to draw revenue from current subscribers and by boosting full-year projections.
In the quarter, Sprint's loss widened to $1.37 billion, or 46 cents a share, from $847 million, or 28 cents, a year earlier. The most-recent quarter included charges of 39 cents a share from the Nextel shutdown and impairment of an investment in network partner Clearwire Corp. (CLWR). Revenue rose 6.4% to $8.84 billion.
Analysts had projected a loss of 40 cents a share on revenue of $8.73 billion, according to Thomson Reuters. Wireless service revenue rose to 17.8%, beating expectations, up from 16.3% a year ago.
Sprint raised its 2012 forecast for adjusted operating earnings before depreciation and amortization to a range of $4.5 billion and $4.6 billion, above a previous view of $3.7 billion to $3.9 billion.
Overall the company lost 246,000 two-year contracts in the quarter, largely from losses of 688,000 users at the legacy Nextel unit.
However, Sprint is squeezing more out of the customers it has with average revenue per postpaid user--an important metric--rising to $60.88 from $56.67 a year ago, the biggest increase in the company's history.
In the quarter, Sprint captured 60% of customers that are leaving its Nextel push-to-talk platform, up from 27% a year ago and 46% last quarter. Sprint said it was unlikely to sustain the latest rate, expecting it to stay above 40% for the rest of the year.
The rate at which customers leave its networks, a measurement known as churn, dropped to 1.79% from 2% in the prior quarter. It was 1.75% a year ago.
Write to Thomas Gryta at thomas.gryta@dowjones.com.
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