Sprint takes half billion dollar revenue hit after ending improper California, federal subsidies

by Steve Blum • , , , ,

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Losing California and federal subsidies it took for inactive Lifeline accounts smacked Sprint hard in the third quarter of 2019. The company released financial results yesterday, reporting that its third quarter revenue dropped to $5.0 billion, compared to $5.3 billion in the second quarter, and $5.4 billion in the third quarter last year.

Cutting off, and perhaps reimbursing, the money it was collecting for 885,000 Lifeline customers nationwide – and an estimated 145,000 in California – who were no longer using the service was number one of two reasons for the slide, according to a statement released by chief financial officer Andrew Davies

We recently notified the FCC that we had claimed monthly subsidies for serving subscribers even though these subscribers may not have met usage requirements under Sprint’s usage policy for the Lifeline program. We are committed to reimbursing federal and state governments for any subsidy payments that were collected incorrectly. While not material to overall results, net operating revenue, wireless service revenue, adjusted EBITDA*, operating income, and net loss in the quarter were all negatively impacted by this issue.

Wireless service revenue of $5.0 billion in the quarter was down $453 million year over year, mostly due to both lower Lifeline revenue as a result of the associated usage issue discussed above and the continued amortization of prepaid contract balances as a result of adopting the new revenue standard last year.

The Federal Communications Commission initially pegged Sprint’s liability at “tens of millions”, but that was just starters. It didn’t include co-subsidies from state programs or fines. One investment analyst group estimates the total liability in “the low billions of dollars”.

So far Sprint’s, um, oops hasn’t surfaced in the California Public Utilities Commission’s review of the pending Sprint/T-Mobile merger, although the Communications Workers of America tried unsuccessfully to make it an issue at the FCC.