Sprint Nextel Corp. posted a fourth-quarter loss as 1.3 million subscribers left its mobile phone service, but the results were not as bad as some had feared, and its shares rose 24 percent.

The No. 3 U.S. mobile company, whose share price has plunged 70 percent in the past year as it struggled with customer defections, said on Thursday it expected subscriber losses to improve in 2009.

Analysts expect Sprint to benefit from an exclusive right to sell Palm Inc's forthcoming Pre phone, but recovery will be tough in a recession with consumers reluctant to spend.

Unfortunately for Sprint, the water is getting drained from the pool just as they are learning to swim again, said Bernstein analyst Craig Moffett, citing the weak economy and slowing overall growth in the maturing wireless market.

Sprint said its net loss narrowed to $1.6 billion, or 57 cents per share, from $29.3 billion, or $10.31 per share, a year earlier, when it recorded a big charge.

Before items such as asset impairment charges, its loss per share was 1 cent, smaller than the analysts' average forecast for a loss of 3 cents, according to Reuters Estimates. Revenue fell 14 percent to $8.4 billion, below Wall Street expectations of $8.5 billion.

Chief Executive Dan Hesse said on a conference call that while Sprint had made progress encouraging higher-spending customers to stay, he was still disappointed with the subscriber losses after his first year at the company.

We have yet to turn the corner, and we are far from satisfied with our results, Hesse said.

But the CEO said demand for Sprint's Boost prepaid service, which lost about 8 percent of its customers in the fourth quarter, has improved since it launched a $50-a-month plan in late January. He said six times more customers were now joining Boost than were leaving it.

Hudson Square analyst Todd Rethemeier said Hesse had done as well as could be expected in his efforts to turn around Sprint's reputation for poor customer service and network reliability under previous management.

He inherited a very tough job. The problems at Sprint are not his fault. He's doing a much better job of fixing it than anybody else would have done, Rethemeier said.

1.1 MLN POSTPAID CUSTOMERS GONE

During the quarter, Sprint lost 1.1 million postpaid customers, who pay monthly bills, in line with the average forecast from four analysts contacted by Reuters.

Including postpaid customers and prepaid customers who pay for calls in advance, it lost 1.3 million customers.

In comparison, Sprint's biggest rival, Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc , added 1.4 million customers in the quarter, while AT&T Inc , the No. 2 U.S. mobile service, added 2.1 million.

Stifel Nicolaus analyst Chris King said that while Sprint's revenue was weaker than expected and subscriber numbers were poor, some investors had feared much worse.

Operationally they still continue to struggle mightily, King said. I don't think you necessarily saw any signs of improvement in the fourth quarter.

Sprint said 2009 capital spending would be similar to 2008, excluding spending on high-speed wireless WiMax technology. It has put its WiMax assets in a venture with Clearwire .

Sprint expects to continue to generate positive free cash flow during 2009, but did not give a specific number. While the company appeared to have enough cash to meet debt payments, some investors worry that it may violate debt covenants.

They're in decent financial shape, said King. They have enough cash to meet their debt maturities through the end of 2010, but we continue to be worried about them perhaps tripping a debt covenant in 2010 and about their debt maturities in 2011.

Sprint shares were up 24.35 percent at $3.37 in morning NYSE trade.

(Reporting by Sinead Carew; Editing by Derek Caney and Lisa Von Ahn)

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