• by Mark Walsh  @markfwal, May 4, 2009

Sprint Nextel got a much-needed boost from its prepaid Boost Mobile service in the first quarter, helping to offset the continuing exodus of contract cell phone customers.

Driven by the introduction of Boost's $50 unlimited calling plan in January, the wireless operator posted a net gain of 764,000 prepaid users in the quarter. The influx of new business helped to mitigate the loss of 1.25 million net customers, reducing the total decline in wireless customers to 182,000.

That figure marks an improvement of more than 1 million in total customer losses over the fourth quarter. During the last six quarters, Sprint has lost more than six million customers arising from network quality and customer service issues.

Sprint Monday reported a first-quarter loss of $594 million -- or 21 cents a share -- compared with a year-earlier loss of $505 million, or 18 cents a share. The results reflect $327 million in severance costs coming from job cuts as the company sheds 13% of its workforce to save roughly $1.2 billion a year. Revenue declined 12% to $8.21 billion.

Sprint CEO Dan Hesse said the company continues to stabilize both financially and in terms of subscriber losses, highlighting the strong gain in Boost Mobile customers. But when it comes to stemming the loss of more profitable contract-based subscribers, "we need to do better," he acknowledged during a conference call with analysts Monday.

In contrast to Sprint, wireless rivals AT&T and Verizon Wireless added 1.2 million and 1.3 million customers, respectively, during the quarter. They also boasted lower customer churn -- or turnover -- rates than Sprint, whose postpaid churn hit 2.25%, up from 2.15% the prior quarter. Hesse noted that churn had improved from a year ago, however, as a result of improvements in customer satisfaction.

Boost's churn rate was 6.86%, down from the 8.20% in the fourth quarter of 2008, and from the 9.93% a year ago.

Sprint's average revenue per users (ARPU) -- a key metric for wireless operators -- was $56 among contract customers, flat with the prior two quarters. William Ho, research director for wireless services at technology research firm Current Analysis, emphasized the lift Sprint got from its fast-growing prepaid business.

"Boost's monthly unlimited customers saved Sprint," he said. "Even though prepaid, Boost's $50 ARPU is a lot better than traditional prepaid monthly plans." He added that in the widening battle to woo prepaid users, "Boost's unlimited plan has helped a lot."

Prepaid plans have gained in popularity as the recession lead consumers to find new ways to cut personal budgets. Virgin Mobile last month became the latest prepaid wireless service to offer a $50-a-month unlimited calling plan, joining Boost and regional cell providers such as MetroPCS Communications and Leap Wireless International.

"The industry is seeing more growth than it would have otherwise from these offers," said Hesse.

He added that Sprint had no plans to expand its current prepaid offers, but the company hopes to see in an uptick in postpaid subscribers in the second half of 2009 with the debut of the much-anticipated Palm Pre-Palm's answer to the iPhone.

Sprint is also counting on business customers -- historically contributing a significant chunk of its revenue-to propel a rebound. "Our hope is that as business led the economy down, it will lead the economy back up, and hopefully we'll see that improve before the rest of the economy overall," said Hesse.

Shares of Sprint closed Monday at $5, up about 7%.