Sprint's trick to making money: A year of free of service

CORPORATE REPORT: Charter, Sprint and HSBC

Shares of Sprint opened nearly 7% higher on Tuesday after the telecom company reported a quarterly profit for the first time in three years. The new announcement now means Sprint can resume its merger negotiations with rival telecommunications company T-Mobile.

Prepaid net additions of 35,000 contributed to sequential growth in prepaid service revenue for the first time in six quarters.

"Sprint reached an important milestone this quarter by returning to profitability for the first time in three years", CEO Marcelo Claure said in a statement.

Sprint added 88,000 subscribers who pay a monthly phone bill in the quarter, compared to 173,000 net additions in the year-earlier period.

"Sprint continued to make progress on its multiyear plan to transform the way it does business and improve its cost structure", Sprint said Tuesday.

Postpaid subscriber churn rose year over year from 1.56% to 1.65%, but fell from 1.75% in the prior quarter.

"We think an announcement will be coming in the near future", Claure said, adding that this would likely be a "vertical" or "horizontal" integration with one of the potential partners that Sprint is talking to. The wireless communications company posted diluted earnings per share (EPS) of $0.05, compared with a net loss a year ago of $0.08 per share.

"We've been going at this since the spectrum auction ended", Claure said. "Hopefully, after a two-month hiatus during which Sprint has been in discussions with cable, the two sides can settle differences and secure the deal that would clearly bring the most value to both companies", analyst Jonathan Chaplin of New Street Research noted on Tuesday.

Analysts had been expecting a loss of 1 cent a share on revenue of $8.16 billion, according to Factset.

"We observed last quarter that we've never in our careers encountered a company whose financial reports, on an as-reported basis, make it as hard to discern underlying trends (although, to be fair, the entire wireless sector is problematic on this score)", Craig Moffett of MoffettNathanson wrote in a note to investors.

Craig Moffett, a telecom analyst at MoffettNathanson, worries investors may sour on Sprint if a deal doesn't materialize amid all the talk. Sprint owes billions in debt that will come due over the next several years, which will severely limit its ability to leverage its valuable pile of 2.5 GHz spectrum.

Shares of Charter Communications hit a record high on Monday, surging to $399.95 before closing at $391.91, up 5.8 percentage points, with its market cap increase being prompted by rumors of an acquisition bid from SoftBank.

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