Sprint Nextel's first-quarter revenue was higher than expected as the company tacked on a new fee for smartphone customers, sending its shares up more than 3 percent.

Although it lost more wireless subscribers than expected in the first quarter as it faced new competition from Verizon Wireless, which launched the Apple Inc iPhone in February, its higher revenue and a lower-than-expected net loss particularly impressed analysts.

But while the new competition hurt customer growth, Sprint's new $10 monthly fee for smartphone users, introduced in late January, did not stop customers from upgrading their devices, Chief Executive Dan Hesse told analysts on a conference call.

Even after the $10 charge, our pricing is very, very competitive, Hesse said.

Sprint has been clawing its way back from years of subscriber losses to bigger rivals such as Verizon Wireless and AT&T Inc..

Sprint, the No. 3 U.S. mobile service, is opposing AT&T's proposed $39 billion purchase of No. 4 U.S. mobile service T-Mobile USA, a Deutsche Telekom AG unit, on the grounds it will give too much competitive power to one company.

In the fourth quarter, Sprint had reported growth in subscribers who pay monthly bills for the first time in more than three years, but that category reverted to a net loss in the first quarter amid stiff competition.

However, Sprint's revenue rose about 3 percent to $8.3 billion, and was above the analyst expectations for $8.19 billion, according to Thomson Reuters I/B/E/S.

Its average monthly revenue per subscriber (ARPU) of $56 rose from $55 in the year-ago quarter and was well ahead of analyst expectations, according to Pacific Crest analyst Steve Clement who had been expecting ARPU of $55.30.

The postpaid net adds was the one area below expectations. Everything else looked solid, Clement said, referring to high-value postpaid subscribers who pay monthly bills and commit to long-term contracts.

Sprint lost 114,000 subscribers in the quarter. While this was much better than its 578,000 losses in the year-ago quarter, it was worse than the average estimate for losses approaching 40,000 from seven analysts contacted by Reuters.

In comparison, Verizon Wireless added 906,000 subscribers in the first quarter of 2011 while the No. 2 U.S. mobile service, AT&T, added 62,000 subscribers.

The company said it added 1.1 million customers in the quarter including prepaid customers who pay for calls in advance but do not commit to a long-term contract. Sprint's 846,000 prepaid net additions was its best ever, it said.

Mizuho analyst Michael Nelson said prepaid additions were well ahead of his expectation for 450,000.

These are favorable results, they're encouraging. The company is making steady progress improving its wireless business, Nelson said.

Sprint's net loss narrowed to $439 million, or 15 cents per share, from a loss of $865 million, or 29 cents per share, a year earlier and was much better than analyst expectations for a loss of 22 cents per share.

Sprint shares were up 16 cents or 3.3 percent at $4.95 in morning trade on the New York Stock Exchange.

(Reporting by Sinead Carew; editing by Derek Caney and Matthew Lewis)