Palm Pre not yet making an impact on Sprint

Sprint (NYSE:S) didn’t release any sales figures for its new iconic device Palm (NASDAQ:PALM) Pre, but CEO Dan Hesse did offer an explanation for why the Pre has failed to have an impact on its operational numbers, while maintaining that Pre sales are strong.

Hesse said that the Palm Pre activations have primarily been upgrades from its existing customer base, trends that don’t increase net additions or boost overall service revenues the way a new smartphone subscriber would. But Hesse added that as Sprint expands its distribution channels, the trend is to move away from raiding its own customer base to generate more new customer activations.

While Sprint continued to reel in prepaid customers in the second quarter, recording a record 777,000 net additions, it continues to bleed high-dollar postpaid subscribers at an alarming pace. Its 991,000 postpaid subscriber net loss is one of its worst performances yet, 28% higher than the second quarter of last year.

Sprint launched the Pre in the early June, giving it less than a month to make an impact in the second quarter. The iPhone 3G S, the yardstick to which the Pre has been compared, however, launched over the AT&T (NYSE:T) that same week and had an immediate impact on Apple (NASDAQ:AAPL) iPhone on AT&T’s numbers, boosting iPhone sales from 1.6 million in the first quarter to 2.4 million in the second. iPhone plans also drove up data revenues $200 million in the quarter and raised its average revenue per subscriber (ARPU) attributable to data by more than a dollar a month. Sprint also saw its data ARPU by 3% to $18.50 for its postpaid CDMA customers, though is overall postpaid ARPU remained flat quarter-over-quarter and year-over-year.

At Sprint’s quarterly conference call today, Hesse said that the Pre is doing well in terms of sales but most of its buyers are current Sprint customers upgrading to the new device. In particular, existing Palm device users such as Centro customers are leading the charge, making the resulting activations neutral in terms of gross additions and service revenue.

“The Palm Pre did very well in terms of its launch and demand, and we’re now in the process of giving more supply to our indirect distribution,” Hesse said, referring to retail partners such as Best Buy and Radio Shack. “Early on we expect a relatively high percentage of the sales to be upgrades to our existing customers for a couple of reasons. Number 1 is early on, from a distribution perspective, the best place to get a Pre was in Sprint stores, and we have a higher percentage of the mix of existing Sprint customers that go to Sprint stores. In addition, we have the largest base of Palm subscribers at Sprint. Historical Palm subscribers have been chomping at the bit to get their hands on the Pre. They were lined up, so earlier on you’re going to get a lot of historical Palm users coming to the Pre.”