Sprint Nextel Corp , the No. 3 U.S. mobile service, posted a wider quarterly loss as it continued to lose valuable postpaid monthly bill-paying customers, sending its shares down more than 6 percent.

Sprint said on Wednesday that slowing subscriber defections were helped by a slight increase in phone upgrades due to its exclusive launch of Palm Inc's
popular Pre phone in early June, but this was not enough to impress investors.

It was in the right direction but it was only incremental, Soleil Nelson Alpha Research analyst Michael Nelson said, citing Sprint's loss of 991,000 postpaid customers, who typically commit to two years of service.

This was narrower than its 1.25 million postpaid losses in the first quarter and compared with the average expectation for a loss of just over 962,000 postpaid customers, according to six analysts contacted by Reuters.

Sprint's Boost Mobile unit's recently launched unlimited prepaid calling plan gained strong traction with 938,000 new prepaid customers on Sprint's iDen network. Including losses of 161,000 prepaid users on the CDMA network, total prepaid additions were at 777,000.

This clearly indicates that the Boost is selling well, Nelson said, referring to a unlimited service plan from Sprint's prepaid unit Boost Mobile.

Chief Executive Dan Hesse said he was not satisfied with customer losses, but pointed out that it represented Sprint's best performance in seven quarters.

The executive told analysts on a conference call that Pre had helped mitigate the impact of the launch of the latest Apple Inc iPhone in June. The No. 2 U.S. mobile service AT&T Inc has exclusive rights to sell iPhone.

I don't want you to think there's no impact from the iPhone. It's a successful device, but we've mitigated the impact with a strong device line-up, Hesse said.

The company said it still expects subscriber losses to narrow in 2009 compared with 2008 and forecast positive free cash flow for the year.

For the second quarter, Sprint's loss widened to $384 million, or 13 cents per share, from a loss of $344 million, or 12 cents a share, in the same quarter a year earlier.

Excluding unusual items, Sprint's loss would have been 4 cents a share compared with analysts' average expectation for a loss of a penny a share, according to Reuters Estimates.

Revenue fell more than 10 percent to $8.1 billion from $9.05 billion a year earlier in line with analysts' average estimate, according to Reuters Estimates.

Sprint shares fell 30 cents, or 6.3 percent, to $4.30 in early New York Stock Exchange trading.

(Reporting by Sinead Carew; Editing by Derek Caney and Maureen