Second quarter earnings at Nextel Communications fell sharply because of merger-related costs and a large year-earlier tax credit, but the US mobile telecommunications carrier which is being acquired by Sprint, reported strong revenue growth boosted by subscriber gains.
Net income fell to $524m, or 46 cents a share from $1.3bn, or $1.16 a share a year earlier when earnings were boosted by tax benefits totaling 69 cents a share. Excluding merger-related costs, a tax benefit and a loss on retirement of debt, Nextel's second-quarter profit would have been 47 cents a share, exceeding analyst's estimates comfortably.
Revenues at Nextel, which has grown quickly in recent years helped in part by its ‘push-to-talk' walkie-talkie style technology which has proved particularly popular with business customers, increased by 16 percent to $3.8bn.
Operating income before depreciation and amortization increased by 12 per cent to $1.4bn for a year earlier.
Sprint is expected to complete its $35bn purchase of Nextel next month following regulatory approval which is expected shortly. The merger will turn SprintNextel into one of the top three US mobile carriers behind Cingular Communications and Verizon Wireless.
Despite the pending merger, Nextel added a total of 763,000 customers during the latest quarter including 550,000 to its core Nextel branded service and 213,000 to its youth-oriented pre-paid Boost Mobile service. Nextel ended the period with about 17.8m customers including 1.7m for the Boost service.
Average monthly revenue per user (Arpu) - one of the key performance measures for mobile operators, increased to $68 in the second quarter from $67 in the first quarter, while customer ‘churn' declined to 1.4 percent from 1.5 percent, among the lowest in the industry.
“We are well on our way to meeting or exceeding our 2005 guidance,” Paul Saleh, chief financial office said during a conference call with analysts. The company said previously that it expects to add 1.9m Nextel customers and about 1m Boost customers this year and report full year earnings of around $1.75 a share.
Nextel is the second of the big five US mobile carriers to report its second quarter results and solid subscriber gains. On Wednesday Cingular Wireless, the largest US mobile carrier, said it added 1.07m subscribers during the second quarter.