Sprint's merger pains got worse in the second quarter, as the company today announced not only disappointing profits and revenue for the last quarter, but also one of the lowest gains in mobile subscriber growth in years. Sprint, however, boosted a little more life into its wireless business announcing plans to accelerate its 3G rollouts by upgrading one quarter of its Power Vision EV-DO network to a faster technology by the end of the year.

Sprint said today it would begin a fast regiment of upgrades to the new CDMA EV-DO revision A platform in the fourth quarter--presumably using its three 3G vendors, Lucent Technologies, Nortel Networks and Motorola--and plans to have the higher-speed data networks covering a footprint of 40 million people by year end. Sprint also had good news on the wireline side, announcing today an expanded agreement with Time Warner Telecom for provisioning the cable operator's voice-over-IP (VoIP) services in an additional 14 markets.

Despite the positive operations outlook, Sprint's recent financial performance fell short of expectations. It posted Q2 revenues of $10 billion, an increase of 5% over the combined Q2-2005 revenues of Sprint, Nextel and recently acquired affiliates, but short of most analysts' expectations. Sprint's second quarter profits, however, plunged due to merger-related costs, falling 38% from the $593 million of the separate companies last year to $370 million last quarter. Sprint on its own earned $600 million in last year's second quarter, making the profit shortfall even more severe if the Nextel acquisition and others are not factored in.

In its wireless unit, revenues increased 8% to $8.52 billion, but the combined companies' operating income fell 4% in the same period. Sprint added 708,000 retail customers last quarter, but most of its growth seems to be coming from its Boost prepaid unit. Sprint added only 210,000 postpaid contract subscribers under the Sprint and Nextel brands, and unlike in previous quarters Sprint saw no growth in its wholesale business. In fact, Sprint recorded a net loss of 31,000 wholesale customers. Mobile virtual network operators and resellers across the country appear to have suddenly lost all momentum as both Sprint and Verizon Wireless have reported net losses in their wholesale subscriber bases, a business that in the first quarter brought Sprint 228,000 new customers.

"We do have work to do to improve the recent performance of the wireless business," said Gary Forsee, president and CEO of Sprint Nextel, at today's earnings call.

Postpaid churn was 2.1%, one of the highest of the major carriers, and that number doesn't include its Boost prepaid business, which reported churn at 6%. Sprint's average revenue per user stayed even at $62 a month, making it the highest in the industry, but that's before factoring in its prepaid, wholesale and affiliate subscribers. Its Boost subscribers account for about 9% of its total subscriber base of 51.7 million, and those customers bring in an ARPU of about $32 a month. Sprint also has 5.4 million wholesale customers and 1.3 million affiliate customers. Its overall adjusted ARPU for the second quarter turned out to be about $49 a customer, putting it about even with competitors Verizon Wireless and Cingular Wireless.

Sprint's EV-DO network now covers 153 million people, ahead of its planned deployment schedule, Sprint officials said. That gives Sprint the leeway to begin its upgrade to revision A this year instead of next, allowing it to bring the technologies faster speeds (450 kb/s to 800 kb/s downlink and 300 kb/s to 400 kb/s uplink) and VoIP support to the network sooner. Sprint has said it plans to introduce VoIP-based push-to-talk to the CDMA network in 2008.

Sprint's long-distance division, while much smaller, helped offset some of the wireless losses. While revenues for the second quarter fell 5% to $1.6 billion, adjusted operating income increased 12% to $162 million.