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Two years ago Sprint Nextel's shift towards prepaid, lower margin customers was bewailed as a major factor undermining the cellco's performance. Now the operator is embracing prepaid as its main turnaround hope, crediting its prepaid, low cost unit Boost Mobile with its largest ever sequential boost in gross additions.

But prepaid business eats into margins, and Sprint posted a first quarter loss of $594m, up from $505m a year earlier. This was largely down to a charge for restructuring costs of $327m, as the company cuts 13% of its workforce. Revenues fell 12% year-on-year to $8.21bn.

But thanks to Boost, Sprint did improve one of the metrics that has been most worrying in its recent quarters, the defection of subscribers. Its total wireless base fell by 182,000 in the first quarter, to 49.1m, which was a lot better than the 1.3m net losses of the fourth quarter 2008. However, on the higher value postpaid side, there was still a deluge of losses - 1.25m net postpaid customers defected, balanced by the net acquisition of 764,000 prepaid subscribers, mainly on Boost's iDEN network. iDEN, which was inherited from the Nextel merger, is the main reason why Sprint may be able to make the economics of its new usage pattern work - following mass defections from the network since merger, it has plenty of spare capacity to support low cost and flat rate tariffs without threatening higher value traffic. Sprint's wireless base is now split into 72% postpaid, almost 9% prepaid, and 19% wholesale/MVNO/affiliate. Growth in the wholesale side was driven mainly by open wireless devices like Amazon Kindle rather than classic MVNOs. There are 1.2m PowerSource customers using dual-mode CDMA/iDEN devices.

Sprint's wireless service revenues for the quarter totaled $6.4bn, a 10% decline year-on-year and 2% quarter-on-quarter. Wireless postpaid ARPU was unchanged on Q408 and year-on-year, at $56. This was encouraging, and the increased uptake of flat rate, bundled plans like Simply Everything took the main credit. Data revenues contributed more than $15 to postpaid ARPU, growing by 5% to $18 on the CDMA network. Outside iDEN/Boost, data ARPU is now about 31% of the total.

Other glimmers of light for Sprint included better cashflow and debt positions. Free cashflow was almost $800m and cash balance was $4.5bn. But churn increased to 2.25%, from 2.15% in Q408, mainly because of the economic downturn and deactivations on business lines. Boost churn was much reduced, from 8.2% to 6.86% in the same period. And there is the fear that the prepaid boom will not last, as other operators like T-Mobile also launch unlimited plans.

Two big moves for Sprint in the coming couple of months should be the launch of the Palm Pre, and the outsourcing of the management of the CDMA network to Ericsson - now reported by The Wall Street Journal to be in "final negotiations". This would slash network costs by an estimated 20% with the transfer of 5,000 to 7,000 employees. The latest talk about the launch date of the Pre is a BoyGeniusReport leak that BestBuy will 'soft launch' the handset first, from June 7 - Palm is understood to be facing component shortages that may restrict the numbers it can ship in the first month or so, and delay a European launch.

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