Sprint Nextel Corp.'s (S) pre-paid Boost Mobile service showed a remarkable turnaround in the first quarter and could quickly challenge the giants in the industry for subscriber growth.

Boost represents a glimmer of hope for Sprint, with its rapid growth fueled by consumers looking to save money and get away from contracts. Those customers, however, yield less revenue and profit than people who sign a contract. Sprint continues to lose higher end subscribers at an alarming rate and doesn't see a recovery until at least the second half. Until then, it must rely on Boost's growth.

"In the second quarter we continue to see improvement from the first quarter," Boost Mobile President Matt Carter told Dow Jones Newswires on Tuesday. "Our game here is not to go backwards."

In eight weeks of service - it launched in February - Boost's new $50 unlimited plan added 764,000 new pre-paid customer. That's a swing of 1 million subscribers from the fourth quarter, when the old Boost pre-paid plan lost 314,000 users.

With a full quarter, new handsets and promotions, and Carter's expectations of even better results, Boost could conceivably add more than 1 million customers in the second quarter. Carter wouldn't confirm the estimate but didn't argue with the math either. He noted there hasn't been a slowdown yet in the second quarter.

That would put it in the range of top-tier players Verizon Wireless and AT&T Inc. (T), which in the first quarter added 1.3 million and 1.2 million subscribers, respectively. It also illustrates the power of pre-paid at a time when the other national carriers, Sprint and T-Mobile USA, struggle.

To be sure, Boost attracts customers who by nature spend less money and generate fewer profits for parent Sprint. But it's also one of the few remaining areas of growth for the industry.

Regional players MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc. (LEAP) also have benefited from consumers switching to cheaper pre-paid plans, but are also starting to acknowledge the threat from Boost.

"Back in January, Leap and Metro laughed at us," Carter said. "Now, MetroPCS believes Boost is its most formidable competitor."

MetroPCS and Leap report first-quarter results on Thursday. MetroPCS already preannounced 684,000 new customers in the period - a record for the regional player.

Boost's start wasn't without hiccups. The service runs off of the Nextel network, which isn't optimized for text messages, and the flood of customers with unlimited text message capability overwhelmed the network. Carter said it would be resolved on Thursday.

Carter dismissed the notion that the Nextel network would need to be upgraded if the current growth trends continue.

"Even with our wildest projections, we have capacity to meet demand," he said.

Boost's success, of course, begs the question of what Sprint's margins will look like down the line, particularly as it continues to lose more valuable contract customers willing to spend more on data plans and other bells and whistles. It lost 1.3 million post-paid subscribers in the period.

"We do our part to financially strengthen the business," Carter said, noting it was important to have a strong offering on both the post- and pre-paid end.

Sprint Chief Executive Dan Hesse called for improved post-paid business in the second half. The carrier is banking on the Palm Inc. (PALM) Pre to spark interest in its service.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com