Sprint's wireline IP growing pains continue in Q2 as revenues drop 14%

Sprint's (NYSE: S) wireless star may be shining brightly with almost 1 million new wireless subscribers in Q2, but on the wireline side the service provider's results illustrate the challenges of replacing legacy revenue (Frame Relay) with IP (VoIP and IP/MPLS) revenues.

During the second quarter, Sprint's wireline revenue declined 14 percent year-over-year.

The service provider attributes the revenue dip to the price declines for voice and IP in addition to the already scheduled migration of wholesale VoIP cable operators off of Sprint's IP platform and lower voice volume.

On a sequential basis, Q2 wireline revenues were down 3 percent due to the ongoing migration of its cable wholesale customers off of its IP platform.

But as seen in other quarters, Sprint's bet on IP continues to produce cost benefits for the IXC. Wireline operating expenses declined 6 percent to $1 billion year-over-year as a result of lower cost of service from continued declines in voice and cable IP volumes, improvement in SG&A expenses and lower depreciation expenses.

Despite its losses, Sprint's bet on IP-based services will likely continue to pay off as more of its business customers migrate off of legacy Frame Relay and ATM services to more IP-MPLS and Ethernet services. A new Vertical Systems Group report says that 2011 represents a tipping point year where Ethernet bandwidth, for example, is beginning to outpace legacy service bandwidth.

Although Sprint lacks the Ethernet footprint of other competitors like AT&T (NYSE: T) and Verizon (NYSE: VZ), the service provider has rolled out Ethernet in 28 markets over the past year and could certainly benefit from the customers migration to the service.  

From an overall financial standpoint, Sprint reported net operating revenues of $8.3 billion, operating income of $79 million and adjusted OIBDA of $1.3 billion. At the same time, Sprint reported an $847 million net loss, a figure that includes $588 million in equity losses of unconsolidated investments and other ($.20 per share net of tax, which includes the effect of increased valuation allowance of $209 million) and a $52 million charge related to recently enacted state law changes in the state of Michigan.

For more:
- see the earnings release

Special Report: Wireline in the second quarter 2011

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