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Sprint Misses by a Penny

The company expects to start paying a dividend, though.
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said fourth-quarter earnings fell 55% from a year ago, missing estimates by a penny on an adjusted basis.

The Reston, Va., telco made $197 million, or 7 cents a share, for the quarter ended Dec. 31, down from the year-ago $437 million, or 29 cents a share. On a so-called adjusted basis, excluding amortization and unusual items, EPS rose 3% from a year ago to 33 cents but missed the 34-cent Thomson Financial target. Revenue surged 63% from a year ago to $11.3 billion, matching the analyst estimate.

"In the fourth quarter, we increased our share of customer decisions and subscriber growth in the wireless business and we again outperformed our peer groups in wireline," said CEO Gary Forsee.

"Our targets for the coming year call for a continuation of solid Wireless growth that is expected to be partially offset by a lower contribution from Long Distance. With our merger integration efforts well under way, we continue to gain confidence in our synergy plans and we expect to achieve operating synergies of nearly $1 billion in 2006.

"Given the substantially improved visibility into our net future cash resources, we now expect to continue to pay nominal quarterly cash common stock dividends following the planned second quarter separation of the local communications operations to our shareholders. The amount of this dividend will be determined by our board. In the future, the board also may consider additional cash distributions in the form of share buybacks or special dividends, subject to tax restrictions related to the separation. No plans for such distributions have been made at this time," Forsee said.

In the fourth quarter, income tax expense was 41% of pretax income compared to 34% in the fourth quarter of 2004. The increase is primarily due to an adjustment to a valuation allowance.

In the fourth quarter, the wireless unit added 2 million net subscribers, including 746,000 under the Sprint and Nextel postpaid brands, 624,000 under the Boost Mobile brand and 651,000 through wholesale channels and from PCS affiliates.

Quarterly service revenue increased 11% year over year due to the growth of the customer base and acquisitions of PCS affiliates partially offset by a lower average revenue per user. Direct post-paid average revenue per user fell to $63 from $65 one year ago, reflecting lower overage and roaming revenues partially offset by increased data contributions. Postpaid churn was 2.1% in the quarter, which was down from 2.2% in the prior year and even with the third quarter.

Boost ARPU was $37, equaling the third quarter. Boost churn was 4.6%, a sequential improvement from the third quarter. Wholesale and affiliate revenue in the quarter increased 9% compared to the year-ago period due to higher wholesale customer counts partially offset by lower revenues due to affiliate acquisitions.

The domestic telecom unit said fourth-quarter voice revenue declined 6% year over year due to growth in wholesale and cable telephony services that was offset by lower consumer and retail business revenues. Data revenue was down 2% in the quarter as growth in private line offset lower Frame Relay revenues. IP revenue was up 9% in the quarter compared to the same period last year. Long Distance reported 20% growth in Dedicated IP due to strength in MPLS.

In the fourth quarter, local phone added 55,000 high-speed Internet customers, bringing full-year additions to more than 200,000. At the end of the year, 74% of local lines were high-speed Internet-capable and penetration of capable lines was 13%. Switched access lines declined 4.1% compared to the end of 2004. Wireless replacement and broadband substitution continue to be the primary drivers of line losses.

For 2006, Sprint forecasts revenue of $41 billion or more, assuming high single-digit to low double-digit growth in wireless and a mid-to-high single-digit revenue decline for long distance.The full-year target for adjusted operating income before depreciation and amortization is about $13 billion. Wireless service margins are expected to increase by roughly 200 basis points and long distance margins are expected to be in the low teens.

Capital spending in 2006 is expected to be about $6.3 billion inclusive of $600 million of re-banding capital. Total re-banding costs for 2006 are expected to be $1.4 billion, which includes $600 million of re-banding capital and $800 million of other costs that primarily will be recorded as spectrum assets.

Additionally, Sprint Nextel continues to expect to deliver $14.5 billion of net present value synergies resulting from its merger and the company continues to target a 40% or better adjusted OIBDA service margin by 2008.