NEW YORK (Reuters) - Sprint Nextel Corp S.N, the No. 3 U.S. mobile service, posted a third-quarter loss and a 12 percent drop in revenue as customers fled to rival services.

Dan Hesse, president and CEO of Sprint Nextel, speaks during a keynote address at the CTIA Wireless convention in Las Vegas, Nevada April 1, 2008. REUTERS/Steve Marcus

The shares fell 13 percent by midday on Friday, although analysts said Sprint’s announcement that it had restructured its credit agreements helped to soothe worries about bankruptcy.

Bernstein Research analyst Craig Moffett called the amended credit facility “a spoonful of sugar ... but the medicine is bitter indeed.”

“Sprint’s subscriber losses were significantly worse than consensus expectations ... which is saying something, by the way, because expectations had already gotten progressively worse in recent days,” he said.

Sprint lost 1.1 million customers who pay monthly bills, known as postpaid subscribers. The average expectation was for a loss of 1.0 million postpaid users, according to five analysts surveyed by Reuters. Their estimates ranged from losses of 950,000 to 1.1 million.

Including postpaid and prepaid customers, who pay for calls in advance and do not commit to monthly contracts, Sprint lost 1.3 million customers in the quarter.

The company has struggled in the past year to stem customer losses amid service problems, weak marketing and an economic downturn that especially hurt its low-credit customers.

“We have yet to turn the corner,” Chief Executive Dan Hesse told analysts on a conference call.

WEAKER THAN EXPECTED

The company posted a net loss for the fourth-straight quarter. The loss totaled of $326 million, or 11 cents a share, compared with a profit of $64 million, or 2 cents per share, in the year-ago quarter.

Excluding items and amortization, Sprint broke even, compared with Wall Street’s average forecast of 3 cents in earnings per share, according to Reuters Estimates.

Revenue fell 12 percent to $8.81 billion, slightly below the average estimate of $8.86 billion.

Wireless post-paid average revenue per user (ARPU) was $56, down nearly 6 percent from a year earlier.

Sprint said it expects continued pressure on post-paid subscribers and “slight downward pressure” on post-paid ARPU in the fourth quarter.

Its shares fell 47 cents to $3.21 by mid-morning trade, and S&P Equity Research cut its price target to $5. They have fallen around 60 percent over the past six months on worries about customer losses to rivals AT&T Inc T.N and Verizon Wireless, a venture of Verizon Communications VZ.N and Vodafone Group Plc VOD.L.

AT&T shares rose 4.5 percent to $27.15, while Verizon shares rose 2.3 percent to $29.93.

Sprint said late last month that it had given up efforts to sell its iDen network, which has been seeing heavy customer losses, after it failed to find a buyer.

There have also been concerns about its debt. Sprint announced earlier on Friday that it renegotiated the terms of its revolving credit facility, a move that gives it more breathing space against financial covenants.

The company also paid down $1.0 billion of the outstanding loan amount under the amended credit agreement.

Stifel Nicolaus analyst Christopher King said the move helps takes bankruptcy concerns off the table until the credit facility expires in 2010, but noted it will be paying higher interest.

Sprint said it would pay interest of LIBOR plus a margin between 2.50 percent to 3.00 percent depending on debt ratings, compared to a previous 0.75 percent.