• by Laurie Sullivan  @lauriesullivan, August 9, 2007

Sprint Nextel Corp. reported second-quarter earnings Wednesday that topped Wall Street estimates, but some analysts believe the third-largest U.S. mobile-phone carrier could do better if it would just get the branding message to click.

Profits fell 95% to $19 million--or 1 cent per share--from $370 million the year earlier, or 10 cents, on merger and severance costs. Sales rose 1.5% to $10.16 billion. Sprint said earnings per share came in at 25 cents, after certain adjustments, beating Wall Street estimates by 3 cents.

General costs rose 11% from the second quarter in 2006 and declined 5% sequentially. Sprint attributes the boost to higher advertising costs and increases in dealer commissions partially offset by lower billing and IT costs, among others.

CFO Paul Saleh noted on a conference call with analysts that the wireless market will remain challenging through September, but said to expect growth in subscribers during the fourth quarter this year.

Analysts aren't buying into the rhetoric. Peter Rhamey, telecom services analyst at BMO Capital Markets, says Sprint's branding has improved but still has problems--and he thinks the company can do a lot better with the right messaging and business strategy execution.

Earlier this year, Sprint hired San Francisco advertising agency Goodby Silverstein & Partners to help lure customers and fend off AT&T, which began selling Apple's iPhone in June.

At least one analyst believes management should step down. "I don't have any confidence this management team will turn things around because they've tried to re-launch the brand three times," says Soleil Securities Telecom Analyst Todd Rethemeier, who's been rather disappointed with the latest ads.

"Wireless customers care about quality of voice service. That's why Verizon says 'can you hear me now' over and over again. That's why Cingular [now AT&T] keeps saying 'more bars, more places and fewer dropped calls'."

Then there's Sprint, Rethemeier says, promoting the speed by which data travels across the network. "Customers don't care about the speed," he says. "They want to know the phone works when they make a call, and the new ads do nothing to change that strategy."

Sprint's monthly subscriber growth rate trailed AT&T and Verizon Wireless, the mobile-phone joint venture between Verizon Communications and Vodafone Group. AT&T added more than 900,000 subscribers in the quarter; Verizon Wireless added 1.5 million.

Sprint signed 373,000 subscribers in the quarter, and the rate of customer turnover fell to its lowest level in two years--2%, down from 2.3% in the previous quarter. The company says it supports a total of 54 million subscribers.

AT&T picked up an exclusive agreement to sell the Apple iPhone, which sports a popular music and video player. The company reported activating 146,000 iPhones in the first two days of its sale agreement, but it's not clear how many of those are new subscribers. Sprint tried to counter with Samsung Electronics' music phone and music player combo called UpStage.

Sprint also reported in July striking a deal with search engine Google to bring WiMAX mobile Internet customers search, collaboration and social-networking tools through a new mobile portal. Industry watchers expect the agreement to boost Web access over Sprint's new network and improve use of Google's search and communications services on mobile devices.