Sprint definitely took a beating after its third-quarter report this week, with shares down more than 10 percent at one point on Wednesday. Investors apparently were expecting improvements in subscriber numbers, but adding those new subs came at a cost, and its losses mounted to an intolerable level.
Is this battering deserved? Maybe from an investor standpoint, but shares and shareholders aside, the carrier deserves a few props for what it has managed to accomplish.
In what once appeared to be an impossible feat, Sprint has made improvements in customer care and call quality, and it’s got some hot 4G devices with the HTC Evo and Samsung Epic. (It just needs an iPhone to really turn things around.)
As a result of those efforts and more simplified pricing, churn is improving. Two years ago, the company served a total of 50.5 million customers and lost 1.1 million postpaid customers in the 2008 third quarter. Back then, churn was about 2.15 percent on the postpaid side and a whopping 8.2 percent for the prepaid Boost offering. This year, third-quarter postpaid churn was 1.93 percent and prepaid churn was 5.32 percent, mainly because of the inclusion of Virgin Mobile and Assurance Wireless customers, who have lower churn on average than Boost Mobile customers.
Sprint has made a good deal of noise about those prepaid offerings, juggling several different brands with aggressive pricing, and prepaid helped it limp through these bad economic times as consumers tighten their own budgets. But carriers with a postpaid legacy tend to get the most bang for their buck with those who sign two-year contracts, and Sprint is showing signs, albeit at the expense of paying higher subsidies, that it’s improving on the postpaid front. The carrier added 354,000 postpaid subscribers in its latest quarter.
T-Mobile USA hasn’t reported its third-quarter results yet, but Sprint CEO Dan Hesse said it looks like the Sprint brand will once again be the fastest growing postpaid brand of all the major brands in terms of net new customers. More customers switched from competitors to Sprint than switched away from Sprint, which says something considering where Sprint has been.
On the down side, Sprint might have a strong cash position, but its $911 million net loss for the third quarter compared with a loss of $478 million a year ago is obviously a big step in the wrong direction. It’s no wonder the stock market reacted so negatively.
In the conference call with analysts, Hesse said in terms of margins, the biggest issue is the cost of service associated with running two networks. The company is evaluating a network “modernization” plan and it hasn’t decided on the vendors for that just yet, but it should start seeing significant benefits probably around 2012 or so, which sounds like a long way off. (This is where we queue up the “What were you thinking?” song, going back to the pre-Hesse days and the wisdom of acquiring Nextel in the first place when your primary network is CDMA.) While this particular network modernization could go in the plus or the minus category, I put it in the minus category because it seems like the longer it takes, the longer the margins suffer.
Another looming question is how Sprint will fare once Verizon Wireless starts rolling out its LTE markets – 38 of them this year. Sprint does have a more mature device portfolio, but it doesn’t have a lot of time to hold onto its first-to-market advantage in the 4G space. Hesse acknowledged as much in the conference call, saying the expectation is that Verizon will get some decent handsets out there in 2011 and “they will be on our heels pretty quickly.”
Sprint also is focusing a lot on being “open,” and while explaining the Sprint Mobile Wallet to developers at a conference this week, Hesse talked about creating another opportunity for developers to monetize their apps outside the walled garden. He jokingly referred to turning those first letters around to “galled wardens.” Corny, yes, but you get where Sprint is going. The company also deserves some credit for aspiring to be tolerable on a wireless carrier continuum that ranges from mildly irritating to unbearable.
Like a lot of folks, I like to cheer for the underdog, so I hope Sprint remains a viable competitor in the long run. Hesse likes to talk about Sprint’s momentum, and he summed it up during the conference call when he said: “We are in a hyper-competitive industry with strong, capable competitors, so making continued progress is hard work, but we intend to persevere.” Onward.