October 25, 2017 / 12:36 PM / a year ago

UPDATE 3-Sprint's quarterly loss narrower than estimated; merger expected

(Adds churn details, updates share price)

NEW YORK, Oct 25 (Reuters) - Sprint Corp reported a narrower quarterly loss on Wednesday than analysts estimated as it added subscribers, and the wireless carrier declined to hold a post-earnings conference call amid expectations of a merger with rival T-Mobile US Inc.

Sources told Reuters this week that T-Mobile and Sprint were laying the groundwork for special committees of their boards of directors to decide on a merger between the third and fourth largest U.S. wireless carriers.

T-Mobile and Sprint have tentatively agreed on a range for a stock exchange ratio which, even at its low end, would offer Sprint a modest premium to its current trading price, the sources added.

Sprint shares surged 2.2 percent to $7.15 in mid-morning trading.

"We continue to believe the market is underestimating upside to Sprint," said Jonathan Chaplin, an analyst at New Street Research, in a research note on Wednesday.

Sprint and T-Mobile are expected to announce an agreement in the first half of November to create a company with more than 130 million U.S. subscribers, just behind Verizon Communications Inc and AT&T Inc.

Analysts at JPMorgan estimated in a note earlier this month that a deal would result in annual synergies of $5 billion to $6 billion, with savings of 30 percent on T-Mobile's selling, general and administrative expenses and 25 percent of its network costs within three years of closing.

Like T-Mobile, which reported earnings on Monday, Sprint declined to elaborate on talk of the merger.

Sprint reported net additions of 279,000 phone subscribers who pay a monthly bill in the quarter, driven by a 10 percent increase in gross additions. Analysts at Wells Fargo had expected 225,000 net additions.

But churn, or the rate of customer defections, rose to 1.59 percent from 1.37 percent a year ago.

"Net net, we do not necessarily view the trade-off between higher churn and higher gross adds as a favorable one," said Matthew Niknam, an analyst at Deutsche Bank, in a note.

The No. 4 U.S. wireless carrier reported a net loss of $48 million, or 1 cent per share, in the second quarter ended Sept. 30, compared to a loss of $142 million, or 4 cents per share, a year earlier.

Net operating revenue was $7.93 billion, down from $8.25 billion in the year-earlier period.

According to Thomson Reuters I/B/E/S, analysts had expected a loss of 2 cents a share and revenue of $8.05 billion.

Reporting by Anjali Athavaley; Editing by Chizu Nomiyama and Bernadette Baum

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