Sprint Nextel Corp posted a wider quarterly loss and revenue fell 10 percent as the No. 3 U.S. mobile service continued to lose valuable post-paid monthly bill-paying customers, sending its shares down almost 12 percent.

While growth was strong in Sprint's prepaid business, investors were disappointed that Sprint's June launch of Palm Inc's
high-profile Pre phone did not give a bigger boost to postpaid subscriber numbers and worried about coming quarters.

There's increasing concern and skepticism they're going to be able to turn around that postpaid gross add number in the near term. That will put pressure on net adds, said Robert W. Baird analyst William Power.

As a result, there is a lack of confidence that the company will meet its guidance for subscriber losses to narrow from 2008, Power said.

While postpaid customer losses of 991,000 showed an improvement from 1.25 million losses in the first quarter, some investors had hoped for a more visible boost from Pre, for which Sprint has exclusive U.S. sales rights into 2010.

It was in the right direction but it was only incremental, Soleil Nelson Alpha Research analyst Michael Nelson said.

In comparison, Sprint's biggest rival, Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc , added 1.1 million new customers in the second quarter and AT&T Inc added 1.4 million customers.

Analysts also worried that Verizon Wireless' announcement that it will sell Pre early next year will mean some customers will hold off on buying the phone from Sprint, but Sprint Chief Executive Dan Hesse said he was seeing no signs of this.

Our hope and our plan is that we'll continue to see gradual improvements in our postpaid subscriber numbers, Hesse said in an interview with Reuters. However, he stopped short of promising sequential improvements each quarter because he said Sprint was not immune to seasonal trends.

Hesse told analysts on a conference call that Pre helped mitigate the impact of Apple Inc's latest iPhone launch in June. AT&T has U.S. exclusive rights to sell iPhone.

PREPAID WORRIES

Sprint's bright spot in the quarter was the addition of 777,000 prepaid users, including 938,000 new customers on its iDen network, helped by its Boost Mobile service that includes unlimited calls and texting for a set monthly fee.

The news hurt shares in prepaid rivals. Leap Wireless ended the day down 5 percent while MetroPCS
closed off 2.5 percent.

Investors worried about Sprint's increasing focus on prepaid, which tends to be less profitable and less predictable than the postpaid business. The concern was underscored by Sprint's announcement on Tuesday that it would buy out prepaid specialist Virgin Mobile USA .

Hesse said growth prospects were strong for prepaid and that profits could be helped if the company manages to reduce customer cancellations, also known as churn.

If we can improve the churn just a little bit it becomes very profitable very quickly. More and more customers like the budgeting one can do on (prepaid), Hesse said.

Bernstein analyst Craig Moffett worried that Sprint's plan for less than $2 billion capital spending was low, especially as the unlimited prepaid plan was raising network usage.

At the end of the day you're looking at a business where usage is rising and revenues are falling and they're not spending any money on the network, he said.

Hesse argued that Sprint, which has been working hard to improve the reputation of its network performance, was further along than rivals in building its high speed network.

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 year-ago quarter.

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 forecast, according to Reuters Estimates.

Sprint shares closed 54 cents, or 11.76 percent, to close at $4.05 on the New York Stock Exchange.

(Reporting by Sinead Carew; Editing by Derek Caney, Maureen Bavdek and Richard Chang)