Update: Sprint FON Issues Warning, Anticipates 4% Revenue Growth

The No.3 long-distance carrier cites fierce competition as a factor in their lower-than-expected third-quarter revenue.
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Updated from 1:58 p.m. EDT

Sprint

(FON)

, the nation's third-largest long-distance carrier, cautioned Wednesday that its third-quarter earnings are likely to be lower than expected, as heightened competition in the telecommunications industry dampens revenue.

Sprint's FON Group, which includes local and long-distance service and the company's data business, is expected to post earnings of 45 to 47 cents a share in the third quarter, below analysts' estimate of 49 cents a share, according to

First Call/Thomson Financial

.

For the third quarter, the group anticipates revenue growth of 4%, as competition in the voice services sector offsets demand for data services and bundled service offerings, the company said in a statement. Sprint's earnings announcement is scheduled for Oct. 17.

Sprint's shares fell $1.44, or 5%, to close at $26.81.

Meanwhile, Sprint, based in Kansas City, Mo., said its

Sprint PCS Group

(PCS)

, a provider of digital wireless service, is expected to record earnings before interest, taxes, depreciation and amortization, or EBITDA, of around $100 million. The figure surprised Wall Street, which had expected around $70 million.

But that piece of auspicious news failed to deflect investors' attention away from another Sprint PCS acknowledgement. The group said it expects to add about 800,000 customers in the third quarter, below previously anticipated estimates of around 900,000, but the company said it is still on track to bring an additional four million customers into its fold during the entire year.

Shares of Sprint PCS fell $7.81, or 19%, to close at $33.

Sprint PCS predicted a third-quarter churn rate in the high 2% to 3% range -- a rise in the number of customers the company lost -- but attributed most of the increase to factors that largely were beyond its control.

Mark Bonavia, a Sprint spokesman, explained that a higher number of customers were disconnected for failing to pay their bills and other prepaid subscribers simply declined to continue their service.

Bill Benton, an analyst at

William Blair & Co.

, acknowledged that it is a positive sign that the company is not losing a lot of customers to rival carriers, but he said that in light of the shortfall, the goal of adding four million customers this year may be too ambitious. The firm has not done any underwriting for Sprint.

"They may have left the bar too high," said Benton, who rates the stock a strong buy. "I believe they may have set themselves up for a potential failure. I guess now it's turning into a case of 'show me.'"

The already-depressed shares of

AT&T

(T) - Get Report

and

WorldCom

(WCOM)

, the Nos. 1 and 2 long-distance companies, also fell Wednesday. AT&T's shares fell 94 cents, or 3%, to close at $30, while WorldCom's stock dropped $1.13, or 4%, to close $27.31. Price battles in the industry, plus the collapse of the proposed WorldCom and Sprint merger, have adversely affected telecommunication stocks.